Marketing Research: An Applied Orientation, 6e (Malhotra)

Chapter 19 Factor Analysis

1) Factor analysis does not classify variables as dependent or independent.

Answer: TRUE
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2) Factor analysis examines the whole set of interdependent relationships among variables.
Answer: TRUE
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3) A factor is an underlying dimension that explains the correlations among a set of variables.
Answer: TRUE
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4) Factor analysis is somewhat similar to discriminant analysis in that each variable is expressed
as a linear combination of underlying factors.
Answer: FALSE
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5) The factors identified in factor analysis are overtly observed in the population.
Answer: FALSE
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6) The equation Xi = Ai1 F1 + Ai2 F2 + Ai3 F3 + ... + Aim Fm + ViUi , represents the common
factors expressed as linear combinations of the observed variables.
Answer: FALSE
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7) Factors can be estimated so that their factor scores are not correlated and the first factor
accounts for the highest variance in the data, the second factor the second highest and so on.
Answer: TRUE
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8) The percentage of the total variance attributed to each factor analysis model is called the
percentage of variance.
Answer: FALSE
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9) Residuals are the differences between the observed correlations, as given in the input
correlation matrix, and the reproduced correlations, as estimated from the factor matrix.
Answer: TRUE
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10) The variables to be included in the factor analysis should be specified based on past research,
theory, and the judgment of the researcher.
Answer: TRUE
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11) In order to use factor analysis, it is important that the variables be appropriately measured on
an ordinal or nominal scale.
Answer: FALSE
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12) For the factor analysis to be appropriate, the variables must be correlated.
Answer: TRUE
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13) Bartlett's test of sphericity is one test of the appropriateness of the factor model.
Answer: TRUE
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14) The test statistic for sphericity is based on a chi-square transformation of the determinant of
the correlation matrix. A large value of the test statistic will favor the acceptance of the null
hypothesis.
Answer: FALSE
Diff: 3 Page Ref: 608
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15) The various methods of factor analysis are differentiated by the approach used to derive the
weights or factor score coefficients.
Answer: TRUE
Diff: 2 Page Ref: 611
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16) Principal components analysis is appropriate when the primary concern is to identify the
underlying dimensions and the common variance is of interest.
Answer: FALSE
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17) It is possible to compute as many principal components as there are variables; in doing so,
parsimony is gained.
Answer: FALSE
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18) Percentage of variance accounted for, scree plot, and a priori determination are all
procedures for determining the number of factors.
Answer: TRUE
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19) When using eigenvalues to determine the number of factors, only factors with eigenvalues
greater than .05 are retained.
Answer: FALSE
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20) Generally, the number of factors determined by a scree plot will be one or a few less than
that determined by the eigenvalue criterion.
Answer: FALSE
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21) The unrotated factor matrix seldom results in factors that can be interpreted because the
factors are correlated with many variables.
Answer: TRUE
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22) The factor matrix is also called the factor pattern matrix.
Answer: TRUE
Diff: 1 Page Ref: 612-613
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23) Factor loadings represent the correlations between sets of variables.

Answer: FALSE
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24) Interpretation is facilitated by identifying the variables that have small loadings on the same
factor.
Answer: FALSE
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25) Rotation does not affect the communalities and the percentage of total variance explained.
Answer: TRUE
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26) If interpreting factors using the rotated factor matrix, a negative coefficient for a negative
variable (prevention of tooth decay is not important) would lead to a positive interpretation
(prevention of tooth decay is important).
Answer: TRUE
Diff: 3 Page Ref: 613-614
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27) Only in the case of principal components analysis is it possible to compute exact factor
scores.
Answer: TRUE
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28) Factor scores should be computed if the goal of factor analysis is to use the results in
subsequent multivariate analysis.
Answer: TRUE
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29) When selecting variables to serve as surrogate variables, you should look for the variable
with the highest loading on a factor.
Answer: TRUE
Diff: 1 Page Ref: 614-615
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30) Selecting surrogate variables works well if one factor loading for a variable is clearly higher
than all other factor loadings.
Answer: TRUE
Diff: 1 Page Ref: 614-615
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31) A factor model that provides a good fit to the data has many large residuals.
Answer: FALSE
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32) The differences between the observed correlations (as given in the input correlation matrix)
and the reproduced correlations (as estimated from the factor matrix) can be examined to
determine model fit.
Answer: TRUE
Diff: 1 Page Ref: 615
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33) Which method of analysis does not classify variables as dependent or independent?
A) regression analysis
B) discriminant analysis
C) analysis of variance
D) factor analysis
Answer: D
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34) ________ is a class of procedures primarily used for data reduction and summarization.
A) Regression analysis
B) Factor analysis
C) Discriminant analysis
D) Conjoint analysis
Answer: B
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35) Factor analysis is a(n) ________ in that the entire set of interdependent relationships is
examined.
A) KMO measure of sampling adequacy
B) orthogonal procedure
C) interdependence technique
D) varimax procedure
Answer: C
Diff: 2 Page Ref: 604
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36) Which of the following applications is appropriate for using factor analysis?
A) to understand the media consumption habits of the target market
B) to determine if variation in market share can be accounted for by the size of the sales force
and advertising expenditures
C) to identify the characteristics of price-sensitive consumers
D) Both A and C are correct.
Answer: D
Diff: 2 Page Ref: 604-605
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37) F represents ________ in the factor model Xi = Ai1 F1 + Ai2 F2+ Ai3 F3 + ... + Aim Fm +
ViUi?
A) the number of variables
B) the number of common factors
C) the common factor
D) a unique factor variable
Answer: C
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38) Factor analysis can be used in which of the following circumstances?

A) To identify underlying dimensions, or factors, that explain the correlations among a set of
variables.
B) To identify a new, smaller set of uncorrelated variables to replace the original set of
correlated variables in subsequent multivariate analysis.
C) To identify a smaller set of salient variables from a larger set for use in subsequent
multivariate analysis.
D) All are correct circumstances.
Answer: D
Diff: 1 Page Ref: 604-605
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39) The amount of variance a variable shares with all other variables included in the factor
analysis is referred to as ________.
A) communality
B) total variance
C) shared variance
D) percentage of variance
Answer: A
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40) If the variables are standardized, the factor model may be presented as ________.
A) Xi = Ai1 F1 + Ai2 F2 + Ai3 F3 + ... + Aim Fm + ViUi
B) Xi = Wi1 F1 + Wi2 F2 + Wi3 F3 + ... + Wim Fm + ViUi
C) Fi = Wi1 X1 + Wi2 X2 + Wi3 X3 + ... + Wim Xm + ViUi
D) Xi = Ai1 F1 + Ai2 F2 + Ai3 F3 + ... + Aim Fm
Answer: A
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41) m represents ________ in the factor model, Xi = Ai1 F1 + Ai2 F2 + Ai3 F3 + ... + Aim Fm +
ViUi,.
A) the number of variables
B) the number of common factors
C) the mth standardized variable
D) the common factors
Answer: B
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42) A ________ is a lower triangle matrix showing the simple correlations, r, between all
possible pairs of variables included in the analysis.
A) factor matrix
B) classification matrix
C) correlation matrix
D) total correlation matrix
Answer: C
Diff: 1 Page Ref: 606
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43) The ________ represents the total variance explained by each factor.
A) eigenvalue
B) percentage of variance
C) residual
D) communality
Answer: A
Diff: 3 Page Ref: 606
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44) Communality is ________.
A) the amount of variance a variable shares with all the other variables being considered
B) the percentage of the total variance attributed to each factor
C) the proportion of variance explained by the common factors
D) both A and C are correct
Answer: D
Diff: 3 Page Ref: 606
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45) ________ are simple correlations between the variables and the factors.
A) Factor scores
B) Factor loadings
C) Correlation loadings
D) Both A and B are correct
Answer: B
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46) A ________ is a plot of the original variables using the factor loadings as coordinates.
A) scree plot
B) territorial map
C) factor loading plot
D) scattergram
Answer: C
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47) The first step in conducting factor analysis is ________.

A) construct the correlation matrix
B) determine the method of factor analysis
C) formulate the problem
D) determine the number of factors
Answer: C
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48) As a rough guideline, there should be at least ________ times as many observations (sample
size) as there are variables.
A) two or three
B) three or four
C) four or five
D) five or six
Answer: C
Diff: 2 Page Ref: 607
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49) Factor analysis may not be appropriate in all of the following situations except ________.
A) a small value for Bartlett's test of sphericity is found
B) small values of the KMO statistic are found
C) the variables are not correlated
D) the variables are correlated
Answer: D
Diff: 3 Page Ref: 608-609
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50) ________ is an index that compares the magnitudes of the observed correlation coefficients
to the magnitudes of the partial correlation coefficient.
A) Mahalanobis ratio
B) KMO measure of sampling adequacy
C) Bartlett's test of sphericity
D) Wilks' lambda
Answer: B
Diff: 3 Page Ref: 608-609
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51) ________ is an approach to factor analysis that considers the total variance in the data.
A) Principal components analysis
B) Common factor analysis
C) Omega method
D) Unweighted least squares
Answer: A
Diff: 2 Page Ref: 611
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52) Which statement is not true about principal components analysis (PCA)?
A) The factors are estimated based only on the common variance.
B) The total variance in the data is considered.
C) PCA is recommended when the primary concern is to determine the minimum number of
factors that will account for maximum variance in the data for use in subsequent multivariate
analysis.
D) The diagonal of the correlation matrix consist of unities.
Answer: A
Diff: 2 Page Ref: 611
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53) Which is not a method of factor analysis?
A) principal components analysis
B) common factor analysis
C) omega method
D) unweighted least squares
Answer: C
Diff: 2 Page Ref: 611
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54) A principal components analysis was run and the following eigenvalue results were obtained:
2.731, 2.218, .442, .341, .183, and .085. How many factors would you retain using the
eigenvalues to determine the number of factors?
A) one
B) two
C) four
D) six
Answer: B
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55) ________ is an approach to factor analysis that estimates the factors based only on the
common variance.
A) Principal components analysis
B) Common factor analysis
C) Omega method
D) Unweighted least squares
Answer: B
Diff: 2 Page Ref: 611
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56) Sometimes, because of prior knowledge, the researcher knows how many factors to expect
and thus can specify the number of factors to be extracted beforehand. This is referred to as
________.
A) a priori determination
B) determination based on split-half reliability
C) determination based on significance tests
D) determination based on scree plot
Answer: A
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57) It is recommended that the factors extracted should account for at least ________ of the
variance.
A) 50 %
B) 60%
C) 65%
D) 70%
Answer: B
Diff: 2 Page Ref: 612
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58) Which of the following statements is not true about factor rotation?
A) Through rotation, the factor matrix is transformed into a simpler one that is easier to interpret.
B) Rotation affects the communalities and the percentage of total variance explained.
C) Preferably, each factor should have a nonzero, or significant, loadings or coefficients for only
some of the variables.
D) Different methods of rotation may result in the identification of different factors.
Answer: B
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59) ________ should be used when factors in the population are likely to be strongly correlated.
A) Orthogonal rotation
B) The varimax procedure
C) Oblique rotation
D) None of the above
Answer: C
Diff: 2 Page Ref: 612-613
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60) Which of the following is a way to interpret factors?

A) based on the variables that load high on a factor
B) by plotting the variables using the factor loadings as coordinates
C) both A and B
D) none of the above
Answer: C
Diff: 2 Page Ref: 613-614
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61) If the goal of factor analysis is to reduce the original set of variables to a smaller set of
composite variables for use in subsequent multivariate analysis, it is useful to ________.
A) compute factor scores for each respondent
B) compute discriminant scores for each respondent
C) select surrogate variables
D) both A and B are correct
Answer: A
Diff: 2 Page Ref: 614
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62) The factor scores for the ith factor may be estimated as follows: ________.
A) Fi = Wi1 X1 + Wi2 X2 + Wi3 X3 + ... + Wik Xk
B) Fi = Wi1 X1 + Wi2 X2 + Wi3 Y3 + ... + Wik Yk
C) Xi = Wi1 F1 + Wi2 F2 + Wi3 F3 + ... + Wim Fm
D) Xi = Ai1 F1 + Ai2 F2 + Ai3 F3 + ... + Aim Fm
Answer: A
Diff: 1 Page Ref: 614
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63) Which statement is not correct concerning factor scores?

A) In principal components analysis it is possible to compute exact factor scores that are
uncorrelated.
B) In common factor analysis, estimates of factor scores are obtained, and there is no guarantee
that factors will be uncorrelated with each other.
C) Factor scores can be used instead of the original variables in subsequent multivariate analysis.
D) All statements are correct.
Answer: D
Diff: 2 Page Ref: 614
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64) When selecting surrogate variables from variables with similarly high loadings, the choice
should be based on ________.
A) measurement considerations
B) theoretical considerations
C) Both A and B are correct
D) the variable with the highest loading on a factor
Answer: C
Diff: 2 Page Ref: 614-615
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65) ________ is the last step in factor analysis.

A) Interpret the factors
B) Determine the model fit
C) Rotate the factors
D) Determine the number of factors
Answer: B
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66) Under what general circumstances is factor analysis used?
Answer: Factor analysis is used in the following circumstances:
1. To identify underlying dimensions, or factors, that explain the correlations among a set of
variables.
For example, a set of lifestyle statements may be used to measure the psychographic profiles of
consumers. These statements may then be factor-analyzed to identify the underlying
psychographic factors.
2. To identify a new, smaller set of uncorrelated variables to replace the original set of
correlated variables in subsequent multivariate analysis (regression or discriminant analysis).
For example, the psychographic factors identified may be used as independent variables in
explaining the differences between loyal and nonloyal consumers.
3. To identify a smaller set of salient variables from a larger set for use in subsequent
multivariate analysis.
For example, a few of the original lifestyle statements that correlate highly with the identified
factors may be used as independent variables to explain the differences between the loyal and
nonloyal users.
Factor analysis has numerous applications in marketing research.
Diff: 2 Page Ref: 604
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67) What are the steps involved in conducting factor analysis (Figure 19.3 in the text)?
Answer: The steps involved in conducting factor analysis are shown in Figure 19.3 in the text.
The first step is to define the factor analysis problem and identify the variables to be factor
analyzed. Then a correlation matrix of these variables is constructed and a method of factor
analysis selected. The researcher decides on the number of factors to be extracted and the method
of rotation. Next, the rotated factors should be interpreted. Depending upon the objectives, the
factor scores may be calculated, or surrogate variables selected, to represent the factors in
subsequent multivariate analysis. Finally, the fit of the factor analysis model is determined.
Diff: 3 Page Ref: 607-615
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68) Describe principal components analysis and common factor analysis and the differences
between the two methods of factor analysis.
Answer: In principal components analysis, the total variance in the data is considered. The
diagonal of the correlation matrix consists of unities, and full variance is brought into the factor
matrix. Principal components analysis is recommended when the primary concern is to
determine the minimum number of factors that will account for maximum variance in the data
for use in subsequent multivariate analysis. The factors are called principal components.

In common factor analysis, the factors are estimated based only on the common variance.
Communalities are inserted in the diagonal of the correlation matrix. This method is appropriate
when the primary concern is to identify the underlying dimensions and the common variance is
of interest. This method is also known as principal axis factoring.

A major difference between the two methods of factor analysis is that principal components
analysis considers the total variance in the data whereas common factor analysis considers only
the common variance. In common factor analysis, the factors are estimated based only on the
common variance.
Diff: 2 Page Ref: 611
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69) List at least four of the procedures used for determining the number of factors.
Answer:
∙ A Priori Determination
∙ Determination Based on Eigenvalues
∙ Determination Based on Scree Plot
∙ Determination Based on Percentage of Variance
∙ Determination Based on Split-Half Reliability
∙ Determination Based on Significance Test
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70) Discuss the process of selecting surrogate variables. Also discuss how the researcher should
decide on which variable to choose in complex situations.
Answer: Selection of substitute, or surrogate variables, involves singling out some of the
original variables for use in subsequent analysis. This allows the researcher to conduct
subsequent analysis and interpret the results in terms of original variables rather than factor
scores. By examining the factor matrix, one could select for each factor the variable with the
highest loading on that factor. That variable could then be used as a surrogate variable for the
associated factor. This process works well if one factor loading for a variable is clearly higher
than all other factor loadings. However, the choice is not as easy if two or more variables have
similarly high loadings. In such a case, the choice between these variables should be based on
theoretical and measurement considerations. For example, theory may suggest that a variable
with a slightly lower loading is more important than one with a slightly higher loading. Likewise,
if a variable has a slightly lower loading but has been measured more precisely, it should be
selected as the surrogate variable.
Diff: 2 Page Ref: 614-615
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