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CHAPTER 1
INTRODUCTION
QUESTIONS
1. Scarcity is a condition that exists when resources are limited relative to the demand for their use.
Another way of describing this condition is to state that scarcity exists when resources are not
2. “What?”—This involves deciding what goods and services to produce and in what quantities (e.g.,
“How?”—This involves deciding how best to allocate a country’s resources in the production of
“For whom?”—This involves deciding how to distribute a country’s total output of goods and
3. a. how
4. Market Process: The use of supply, demand and material incentives (e.g., the profit motive) to
“What?”—Whatever is profitable will be produced. Profitability in turn depends on the strength of
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Introduction 2
“For whom?”—The output of goods and services should be allocated to whoever is willing and able
5. As much as managers in a market economy rely on demand, cost, and profitability to guide them in
Command Process: Strategic, long-term or “political” decisions that are made by some central
authority in an organization (in a large company it might be for example the CEO, the corporate
A good example of this is the case of the IBM typewriter. In 1984, IBM made a major strategic
decision to stay in the business of making typewriters, even though analysis indicated that it would
In 1990, IBM decided to spin off its typewriter division to a separate, privately owned company
Of course, managers in a market economy must also deal with the command process whenever
Traditional Process: As pointed out in the text, customs and traditions play a more important role
for managers in developing countries. However, we have observed or read about certain instances
If the instructor wishes, he or she may wish to bring up the whole issue of the traditional view of
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Introduction 3
Instructors may also wish to consider the traditional view and acceptance of various unethical
6. This question is subject to considerable interpretation and the instructor may choose to use his or
her own distinctions between the two concepts. We believe that management skills have to do more
7. Microeconomics focuses on individual markets for goods and services, while macroeconomics
focuses on aggregate economic activity. Managers should understand the macroeconomy in order to
8. Marketing is the key to success in this industry. Specifically, this includes all of the “four P’s of
Our background paper on this industry should give instructors further information to discuss this
9. Note to Instructors: Here are some suggested answers. These may be modified depending on
a. Telecommunications: This is a rapidly changing industry for all types of companies. Let us
b. Retail Merchandising:
Competition: “Category busters” such as Home Depot, Sports Authority, and Borders Books
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Introduction 4
c. Higher Education: The Internet has enabled institutions to offer online, distance learning
d. Airlines: After more than 20 years of deregulation in the United States, the airline industry has
Copyright © 2014 Pearson Education, Inc.
