Chapter 2

Question 1

What is an external environment?

Answer 1

Everything outside an organizations boundaries that might affect it.

Question 2

What is organizational boundaries?

Answer 2

That which separates the organization from its environment.

Question 3

Define an economic environment?

Answer 3

Conditions of the economic system in which an organization operates.

Question 4

Define aggregate output.

Answer 4

It is the total quantity of goods and services produced by an economic system during a given period.

Question 5

Define standard of living.

Answer 5

Total quantity and quality of goods and services that a country’s citizens can purchase with the currency used in their economic system.

Question 6

What is the business cycle?

Answer 6

It is the pattern of short-term ups and downs (expansion and contractions) in an economy.

Question 7

Define recession and when it starts and ends.

Answer 7

Recession is two consecutive quarters when the economy shrinks.

Starts after the peak of the business cycle and ends when the trough is reached.

Question 8

What does GDP stand for and what is it?

Answer 8

Gross Domestic Product
- refers to the total value of all goods and services produced within a given period by a national economy through domestic factors of production.

Question 9

Explain real growth rates (GDP).

Answer 9

GDP calculated to account for changes in currency values and price changes.

Question 10

Define GDP per capita and state the calculation.

Answer 10

GDP per person.

Total GDP / total population

Question 11

What is real GDP?

Answer 11

GDP that has been adjusted.

Question 12

Define Purchasing Power Parity.

Answer 12

The principle that exchange relates are set so that the prices of similar products in different countries are about the same.

Question 13

Define balance of trade.

Answer 13

The economic value of all the products that a country exports minus the economic value of its imported products.

Question 14

National debt is…

Answer 14

The amount of money that the government owes its creditors.

Question 15

Define budget deficits.

Answer 15

The result of the government spending more in one year than it takes in during that year

Question 16

Define stability.

Answer 16

The amount of money available and the quantity of goods and services produced are growing at about the same rate.

Question 17

Define inflation.

Answer 17

Occurrence of widespread price increases throughout an economic system.

Question 18

What does the consumer price index (CPI) measure?

Answer 18

The prices of typical products purchased by consumers living in urban areas.

Question 19

Deflation is…

Answer 19

The period of generally falling prices.

Question 20

What is unemployment?

Answer 20

The level of joblessness among people actively seeking work.

Question 21

List the 4 kinds of unemployment.

Answer 21

1. Fractional unemployment
2. Seasonal unemployment
3. Cyclical unemployment
4. Structural unemployment

Question 22

What are fiscal policies?

Answer 22

Policies whereby governments collect and spend revenues.

Question 23

What are monetary policies?

Answer 23

Policies whereby the government controls the size of the nations money supply.

Question 24

Define basic (or pure) R&D.

Answer 24

Improving knowledge in an area without a primary focus on whether any discoveries that might occur are immediately marketable.

Question 25

Define Applied R&D.

Answer 25

Focusing specifically on how a technological innovation can be put to use in the making of a product or service that can be sold in the marketplace.

Question 26

What is a political-legal environment?

Answer 26

Conditions reflecting the relationship between business and government, usually in the form of government regulations.

Question 27

What is nationalization?

Answer 27

Government takeover of resources, forcing private companies to sell at a price deemed fair by the government.

Question 28

What is a social-cultural environment?

Answer 28

Conditions including the customs, values, attitudes and demographic characteristics of the society in which an organization functions.

Question 29

What is core competencies?

Answer 29

Skills and resources with which an organization competes best and creates the most values for owners.

Question 30

Define outsourcing?

Answer 30

Strategy of paying suppliers and distributors to perform certain business processes or to provide needed materials or services.

Question 31

What is viral marketing?

Answer 31

Strategy of using the internet and word-of-mouth marketing to spread product information.

Question 32

Define process.

Answer 32

Any activity that adds value to some input, transforming it into an output for a customer (whether external or internal)

Question 33

What is the business process management?

Answer 33

It’s an approach which firms move away from department-oriented organization and toward process-oriented team structures that cut across old departmental boundaries.

Question 34

Define acquisition.

Answer 34

The purchase of a company by another, larger firm, which absorbs the smaller company into it operations.

Question 35

What is a merger? And what are the types?

Answer 35

Merger: the union of two companies to form a single new business.

(A merger of two firms…)
Horizontal merger: … that have previously been direct competitors in the same industry.

Vertical merger: … that have previously had a buyer-seller relationship.

Conglomerate merger: … in completely unrelated businesses.

Question 36

What is a friendly takeover?

Answer 36

An acquisition in which the management of the acquired company welcomes the firms buyout by another company.

Question 37

What is a hostile takeover?

Answer 37

An acquisition in which the management of the acquired company fights the firms buyout by another company.

Question 38

Describe a poison pill.

Answer 38

A defense that management adopts to make a firm less attractive to an actual or potential hostile suitor in a takeover attempt.

Question 39

When does a divestiture occur?

Answer 39

A divestiture occurs when a company decides to sell part of its existing business operations to another corporation.

Question 40

What is a spinoff?

Answer 40

Strategy of setting up one or more corporate units as new, independent corporations.

Question 41

What is a strategic alliance?

Answer 41

An enterprise in which two or more persons or companies temporarily join forces to undertake a particular project.

Question 42

What is a subsidiary corporation and a parent corporation?

Answer 42

Subsidiary corp: one that is owned by another corporation.

Parent corp: a corporation that owns a subsidiary.