Question 1

During an economic crisis credit markets typically loosen their requirements.

Accepted Answer

During an economic crisis, credit markets typically tighten their requirements to reduce risk and protect lenders from potential defaults.

Question 2

The purpose of Porter's five forces analysis is to identify the factors that affect the profit potential of an industry.

Accepted Answer

False

Question 3

The political segment includes elements such as tax policies, changes in trade restrictions and tariffs, and the stability of governments.

Accepted Answer

The political segment of an external environment analysis includes factors like tax policies, trade restrictions, tariffs, and government stability, as these can significantly impact business operations and strategies.

Question 4

The likelihood of new entrants joining an industry is high if differentiation among existing competitors is high.

Accepted Answer

High differentiation among existing competitors creates barriers to entry, making it difficult for new entrants to compete effectively, thus reducing the likelihood of new entrants joining the industry.

Question 5

Bitter rivalry between an industry's competitors is especially detrimental to the competing firms if their competition is based on unique features of their products or services.

Accepted Answer

Competition based on unique features can differentiate products, potentially reducing direct rivalry and allowing firms to target specific market segments, which can be beneficial rather than detrimental.

Question 6

High industry concentration increases the chances of bitter rivalry between an industry's competitors.

Accepted Answer

High industry concentration typically means fewer firms dominate the market, which can lead to less intense rivalry as these firms may have established market shares and prefer to avoid price wars.

Question 7

A few organizations wield such power and influence that they can shape some elements of the general environment.

Accepted Answer

Some organizations have significant power and resources, allowing them to influence regulatory, economic, or social aspects of their environment.

Question 8

Attitudes toward obesity constitute a social factor in the PESTEL framework.

Accepted Answer

The PESTEL framework includes social factors, which encompass societal attitudes and cultural norms, such as attitudes toward obesity.

Question 9

The environment provides resources that an organization needs in order to create goods and services.

Accepted Answer

The environment supplies essential resources such as raw materials, energy, and labor, which organizations utilize to produce goods and services.

Question 10

Rivalry in fragmented industries tends to become bitter and fierce.

Accepted Answer

Fragmented industries have many competitors, leading to intense competition as firms strive to gain market share.

Question 11

The environmental segment involves the physical conditions within which organizations operate.

Accepted Answer

The environmental segment refers to the natural and physical conditions, such as climate, weather, and geographical location, that can impact how organizations function and make decisions.

Question 12

Rivalry tends to be fierce among an industry's competitors if exit barriers in the industry are low.

Accepted Answer

When exit barriers are low, firms can leave the industry easily, reducing the intensity of rivalry among remaining competitors.

Question 13

Moore's Law suggests that the performance of alternative energy technology roughly doubles every four years.

Accepted Answer

Moore's Law specifically refers to the doubling of transistors on a microchip approximately every two years, not the performance of alternative energy technology.

Question 14

Bitter rivalry between an industry's competitors can lead to increase in prices of their products or services, thereby harming consumers.

Accepted Answer

Bitter rivalry typically leads to price wars, where competitors lower prices to gain market share, benefiting consumers with lower prices.

Question 15

The likelihood of new entrants joining an industry is low if existing competitors enjoy economies of scale.

Accepted Answer

Economies of scale allow existing competitors to produce at lower costs, creating a barrier to entry for new entrants who cannot match these cost advantages.

Question 16

Rivalry tends to be fierce among an industry's competitors if fixed costs in the industry are low.

Accepted Answer

When fixed costs are low, companies have less pressure to produce at full capacity, reducing the intensity of competition. Fierce rivalry is more common when fixed costs are high, as firms need to cover these costs by maintaining high production levels.

Question 17

Rivalry tends to be fierce among an industry's competitors if the competitors are well differentiated from each other.

Accepted Answer

When competitors are well differentiated, they target different customer needs or preferences, reducing direct competition and rivalry.

Question 18

PESTEL analysis is an important tool for organizing factors within the general environment and identifying how these factors influence industries and the firms within them.

Accepted Answer

PESTEL analysis helps in understanding the macro-environmental factors (Political, Economic, Social, Technological, Environmental, and Legal) that can impact industries and firms, aiding strategic planning and decision-making.

Question 19

Changes in legal factors can have a positive impact on the profit potential of many industries.

Accepted Answer

Changes in legal factors, such as deregulation or favorable laws, can reduce costs or open new opportunities, positively impacting profit potential.

Question 20

Rivalry tends to be fierce among an industry's competitors if the growth rate of demand for the industry's offerings is high.

Accepted Answer

When the growth rate of demand is high, companies can grow without taking market share from each other, reducing the intensity of rivalry.

Quiz 3: Evaluating the External Environment