Business Ethics Exam 2 Study Guide

For the first time since the Industrial Revolution, less than _____ percent of the American workforce was employed by manufacturing.

10

Which statement best describes capitalism?

Capitalism is an economic system that operates under the profit motive.

Which of the following consumer goods is responsible for the greatest number of individual social ills?

Cigarettes

According to John Stuart Mill, what makes capitalism a desirable economic system is the type of worker-capitalist relationship inherent in capitalism.

False

According to law professor Christopher D. Stone, the relationship between corporate management and its shareholders is identical with the relationship between you and an investment advisor.

False

Anti-paternalism gains plausibility from the view that individuals know their own interests better than anyone else and that they are fully informed and able to advance those interests.

False

Capitalism is possible without private property.

False

Economists favor legal paternalism because it prevents individuals from balancing safety against price.

False

If it's true that individuals have a natural right to own property, then there can be no limits on this right.

False

In the 1960 case Henningsen v. Bloomfield Motors and the 1963 case Greenman v. Yuba PowerProducts, injured consumers were awarded damages based on their proving that the manufacturers of the defective products were negligent.

False

Some critics believe that "competition is not a good" because trying to do well and trying to beat others are two different things.

False

Strict liability is the same thing as absolute liability.

False

The business-can't-handle-it argument is an argument in favor of a broad view of corporate responsibility.

False

The capitalism that we know today in the United States is a "pure" form of laissez-faire capitalism.

False

The invisible-hand argument against broadening corporate responsibility says that business's appetite for profit should be controlled by the hand of the government.

False

What society finds to be useful and desirable is always brings profitability to companies.

False

Which of the following historical stages of capitalism came first?

Mercantile

Which statement is true from an ethical perspective?

The argument for strict liability is basically utilitarian.

Which of the following contributed to the more relaxed incorporation procedures of modern times?

The idea that incorporation is a by-product of the people's right to associate, not a gift from the state.

"Limited liability" means that members of a corporation are financially liable for corporate debts only up to the extent of their investments.

True

"Weasel words" are words used to evade or retreat from a direct or forthright statement.

True

According to Adam Smith, individuals have natural endowments that should determine the kind of work they do.

True

According to Keith Davis, in addition to considering potential profitability, a business must weigh the long-range social costs of its activities as well. Only if the overall benefit to society is positive should business act.

True

Corporations should welcome the outside opinions of society as a whole, local communities, customers, suppliers, employees, managers, and stockholders.

True

Externalities are the unintended negative (or in some cases positive) consequences that an economic transaction between two parties can have on some third party.

True

Legally a corporation is a thing that can endure beyond the natural lives of its members and that has incorporators who may sue and be sued as a unit and who are able to consign part of their property to the corporation for ventures of limited liability.

True

One decisive case in the legal transition away from the reasonable-person standard in matters of advertising, sales and marketing was FTC v. Standard Education.

True

The FTC now follows the "modified" ignorant consumer standard and protects only those cases of foolishness that are committed by significant numbers of people.

True

The controversy over legal paternalism pits the values of individual freedom and autonomy against social welfare.

True

Which of the following is an example of price gouging?

a New York hotel tripling its room prices after 9/11

Milton Friedman argues that

a business has no social responsibilities other than to maximize profits.

Terms like "can be," "as much as," and "help," are examples of

ambiguity

Adam Smith proposed that in our pursuit of economic interests we are led by

an invisible hand to promote general good.

Marxism states

capitalism leads to a concentration of property and thus a concentration of resources and power in relatively few hands.

For years Bayer aspirin advertised that it contained "the ingredient doctors recommend most." This is an example of:

concealment of facts.

According to Galbraith's "dependence effect",

consumer demand tends to be shaped by the production process.

One of the three important "limits to what the law can do" discussed by Christopher Stone is

designing effective regulations is difficult.

Harvard business professor Theodore Levitt has

drawn an analogy between advertising and art.

Kenneth Arrow argues that

ethical codes can contribute to economic efficiency.

Milton Friedman's perspective is that the only responsibility of a business is to

make money for its owners.

A common point of contention about corporations is

philosophers and business theorists disagree whether corporations are moral agents.

The "rules of the game" for corporate work are intended to

promote open and free competition.

In the corporate world, the board of directors will

rubber stamp the policies and recommendations of the management.

Defenders of advertising claim that, despite criticisms, advertising enjoys protection under the first Amendment as a form of speech.

the "modified" gullible-consumer standard.

Before the case of MacPherson v. Buick Motor Car in 1916, the law based a manufacturer's liability for injuries due to a defective product on

the contractual relationship between the producer and the consumer.

Due care is

the idea that consumers and sellers do not meet as equals and that consumer's interests are particularly vulnerable to being harmed by the manufacturer.

The first corporations

were towns, universities, and ecclesiastic orders.