Deck 14: Ethics and a Market Economy

Question 1

Transaction costs also are known as which one of the following choices?

A) frictional costs
B) false costs
C) fabricated costs
D) flawed costs

Answer 1

frictional costs

Question 2

When someone says, "My word is my bond," they mean they

A) insist on completing a written contract
B) refuse to pay transaction costs
C) are a trustworthy business partner
D) seek to behave in an unethical way

Answer 2

are a trustworthy business partner

Question 3

Which of the following choices is the best example of a transaction cost?

A) the face-value price of concert tickets
B) the energy expended driving to a concert
C) the time spent at a concert
D) the processing fee charged for concert tickets

Answer 3

the processing fee charged for concert tickets

Question 4

Adrianne spends three Saturdays and uses several tanks of gas while driving from store to store to find the most appealing furniture for her new apartment. This best exemplifies which type of transaction cost?

A) search and information costs
B) bargaining costs
C) policing and enforcement costs
D) transfer costs

Question 5

Which of the following choices is the best example of a search and information cost?

A) A clothing retailer creates a generous return policy for its customers.
B) A consumer products firm spends millions of dollars in advertising for a new shampoo.
C) A real estate broker charges a fee to list and sell a house.
D) A technology company spends millions of dollars manufacturing gear shafts for machinery.

Question 6

Representatives from two major league baseball teams spend three days meeting to negotiate relevant aspects of the trade of an experienced, successful pitcher. This best exemplifies which type of transaction cost?

A) search and information costs
B) bargaining costs
C) policing and enforcement costs
D) transfer costs

Question 7

Which of the following choices is the best example of a bargaining cost?

A) A jewelry manufacturing spends years developing a new synthetic gemstone.
B) A technology company requires written contracts regarding dispute resolution with its external developers.
C) An automobile company spends millions developing a new brand.
D) A financial services firm charges a fee to manage a customer's portfolio.

Question 8

A few months after he moved in, Brendan's roof began leaking, but his landlord refused to repair the roof. Brendan then hired an attorney to help impose the contract between himself and his landlord. The lawyer fees that Brendan paid are an example of which type of transaction cost?

A) search and information costs
B) bargaining costs
C) policing and enforcement costs
D) transfer costs

Question 9

Which of the following choices is the best example of a policing and enforcement cost?

A) An automobile manufacturer spends years perfecting an emissions-free vehicle.
B) An online retailer creates a subscription program that provides extra benefits to subscribers.
C) A consumer products firm spends millions of dollars creating a marketing campaign targeting millennials.
D) A furniture retailer employs a quality control officer to check incoming shipments.

Question 10

Cierra strives to behave ethically always. How can she potentially benefit by engaging in business transactions with Company X, which also is committed to ethical behavior?

A) Transaction costs can be minimized.
B) Transaction costs can be eliminated.
C) Transaction costs will remain static.
D) Transaction costs will be frictionless.

Question 11

Which of the following situations would best help reduce policing and enforcement costs?

A) Both the buyer and seller of Product W have the same data regarding product specifications and quality.
B) The seller of Product X treats the buyer as an equal and seeks to trade fairly.
C) The buyer of Product Y knows its interest does not conflict with that of the seller.
D) Both the buyer and seller of Product Z refuse the use of written contracts.

Question 12

Which of the following situations would best help reduce bargaining costs?

A) Both the buyer and seller of Product J have the same data regarding product specifications and quality.
B) The seller of Product K treats the buyer as an equal and seeks to trade fairly.
C) The buyer of Product L knows its interest does not conflict with that of the seller.
D) Both the buyer and seller of Product M refuse the use of written contracts.

Question 13

Friction occurs when two objects are moving in opposite directions. Why are transactional costs sometimes referred to as frictional costs?

A) Transaction costs slow trade between parties and add complexity.
B) Transaction costs typically incite anger in one of the trade partners.
C) Transaction costs pit buyer and seller against each other.
D) Transaction costs typically create opportunities for unethical behaviors.

Question 14

How does ethical behavior reduce transaction costs in an economy?

Question 15

The definition of trust as "the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party" sets the idea of trust as which one of the following choices?

A) as a trait of individuals
B) as a trait of organizations
C) within a relationship
D) within financial parameters

Question 16

Which type of trust is most evident when a transaction's risk level is low?

A) weak-form trust
B) semi-weak-form trust
C) semi-strong-form trust
D) strong-form trust

Question 17

Strong-form trust is also referred to as which one of the following choices?

A) soft-core trust
B) principled trust
C) semi-weak-form trust
D) seasoned trust

Question 18

Which of the following statements most accurately describes trust?

A) Trust exists when transactional parties rely on contractual enforcement to motivate each other to meet obligations.
B) Trust begins with costly policing and enforcement mechanisms.
C) Trust is best employed when parties are willing to be vulnerable to the actions of others in the short term.
D) Trust can be nurtured when a commitment to ethical behavior is evident to both parties.

Question 19

A discount retailer seeks to hire twenty-five people to work in its stores throughout the holiday season. The employees will make minimum wage and be expected to stock shelves, run cash registers, and provide customer service. This type of transaction typically requires which type of trust?

A) weak form
B) semi-weak form
C) semi-strong form
D) strong form

Question 20

Which of the following choices is the best example of weak-form trust?

A) A manufacturing firm agrees to provide ten million axles to a government agency.
B) A supply manager buys office supplies from a well-known vendor.
C) A project manager tells a vendor that it neglected to include an expensive line item on an invoice.
D) A technology firm contracts with a developer for the creation of an app.

Question 21

Wal-Sam, an enormous discount retailer, has an agreement with Company Z, a small, up-and-coming vendor, to deliver one million units of Product Z in a month's time. Both parties know that if Company Z fails to deliver adequate product on time, Wal-Sam can easily tarnish its reputation. This type of transaction demonstrates which type of trust?

A) weak form
B) semi-weak form
C) semi-strong form
D) strong form

Question 22

Which of the following choices is the best example of semi-strong-form trust?

A) An accountant points out his errors to management though it may come at the expense of his reputation.
B) A customer purchases athletic equipment from the local sporting goods store.
C) A purchasing agent buys bath soap from a consumer product distributer.
D) A hiring agency contracts with a recreation commission to provide fifty lifeguards for the summer season.

Question 23

You are the purchasing agent for your company and are meeting with Devon, a vendor representative with whom you have worked for a long time. As you discuss the products you need, Devon alerts you to some price discounts even though using them will reduce his sales commission. This type of transaction demonstrates which type of trust?

A) weak form
B) semi-weak form
C) semi-strong form
D) strong form

Question 24

Which of the following choices is the best example of strong-form trust?

A) A truck driver fills his tank with gasoline at the nearest station.
B) Instead of taking the money, a construction foreman reports a vendor's offer of monetary kickbacks to management.
C) A healthcare system threatens to expel an office from its membership if the office continues to ignore contractual obligations.
D) A restaurant offers a new variety of menu items weekly.

Question 25

Which of the following best describes a typical outcome of strong-form trust?

A) It may increase work-related errors in the short run.
B) It eliminates transaction costs.
C) It better aligns the firm's daily activities with its mission statement.
D) It increases the likelihood of knowledge sharing that leads to innovation.

Question 26

Business partners Elaina and Francine are discussing a recent lecture on the economic value of trust. Both are committed to ethical behavior and seek to work only with like-minded partners. Elaina believes that using traditional contracts and employing a strong legal department are all their company needs to create value. Francine disagrees. Which of the following choices is Francine's best response to persuade Elaina to nurture strong-form-trust relationships with their trading partners?

A) Strong-form trust creates positive emotions and employee engagement and it betters societal relationships and job satisfaction. It helps employees lead a PERMA life.
B) Legal departments and contracts are very costly, which means the company cannot rely on them for the long run. Strong-form trust is a free and easy undertaking with strong results.
C) Strong-form trust eliminates friction in an economic system, thereby eliminating transaction costs.
D) Companies nurturing strong-form-trust relationships are better poised to become economic ecosystems that create internal value for employees.

Question 27

Describe the three types of trust and how they impact business performance.

Question 28

The economic value of ethical behavior extends beyond individuals and organizations to include

A) business communities
B) religious institutions
C) educational institutions
D) neighborhoods

Question 29

The bonds between people that bring lasting satisfaction are known as

A) extrinsic relationships
B) intrinsic relationships
C) internal motivations
D) external motivations

Question 30

Which philosopher believed in treating people like ends in themselves?

A) Adam Smith
B) John Stuart Mill
C) Immanuel Kant
D) John Rawls

Question 31

Ethical behavior lays a solid foundation for an efficient economy by

A) producing goods and services that meet buyers' needs
B) creating deeply engaged trading relationships
C) allowing for higher levels of achievement
D) reducing transaction costs

Question 32

Ethical behavior lays a solid foundation for an effective economy by

A) producing low-cost goods and services
B) creating deeply engaged trading relationships
C) fostering trust that enables innovation
D) reducing transaction costs

Question 33

What does Immanuel Kant's deontological ethical theory mean in its assertion that people should be treated as an "ends," not a "means?"

A) People are inherently valuable for themselves, not what they can do for you.
B) People are inherently valuable for what they can do for you, not for themselves.
C) People should be used as interchangeable tools for business trading.
D) People should limit their involvement in business trading.

Question 34

Sales representative Garrett frequently offers bribes to the purchasing managers he visits. Which of the following statements most accurately describes Garrett's thinking?

A) Garrett views others as subjects to be respected.
B) Garrett views others as ends in themselves.
C) Garrett views others as objects to be used.
D) Garrett views others as a source of innovation.

Question 35

Heather treats each of her clients with the same level of respect as she would her friends and family. Which of the following represents a potential business benefit for Heather?

A) a strengthened commitment to justice
B) strong-form trust with trading partners
C) the discovery of unmet needs
D) the elimination of transaction costs

Question 36

Based on their daily interactions, all of Ivan's direct reports know that he respects them. Which of the following represents a potential non-economic benefit for Ivan?

A) a strengthened commitment to justice
B) strong-form trust with trading partners
C) product or service innovation
D) reciprocated respect

Question 37

Jessica is committed to fairness and justice in all work endeavors. What is a potential business benefit for Jessica?

A) the discovery of unmet needs
B) strong-form trust with trading partners
C) product or service innovation
D) elimination of transaction costs

Question 38

ABC Company has invited a team of employees to brainstorm ideas for a new product. The employees work in different areas, have different focuses, and have various levels of experience with similar innovations. If ABC Company is committed to justice and fair treatment, what is the most likely outcome?

A) Employees will contribute ideas knowing they will be valued and rewarded.
B) Employees will hold back on ideas in an effort to allow others to contribute.
C) Employees will contribute ideas of equal value.
D) Employees will contribute ideas that create a truly innovative and valuable product.

Question 39

Recently, groups like Black Lives Matter have again raised the call for racial equality. What is the best way to create a lasting change in American society?

A) a commitment to justice
B) both justice and forgiveness
C) respect and objectivity
D) commitment to ethics in economic transactions

Question 40

The deaths of black men like George Floyd at the hands of police officers have again raised the call for racial equality. What is the best way for American society to move forward to live together in trust?

A) Create legislation regarding forgiveness and reconciliation.
B) Force high-ranking government officials to demonstrate forgiveness and reconciliatory attitudes.
C) Request that police officers demonstrate forgiveness and reconciliatory attitudes.
D) Foster forgiveness and reconciliatory attitudes among all members of society.

Question 41

What is the synthesis of reconciliation and strong-form trust?

A) Risk levels are high and trust requires interaction over time.
B) Transaction costs are minimized.
C) Both foster innovative communities of like-minded people.
D) Economic friction is increased.

Question 42

How does ethical behavior improve the efficiency and effectiveness of the economy?

Question 43

Autonomy comes from the ancient Greek word, eleutheria, which means

A) freedom
B) ethic
C) satisfaction
D) honesty

Question 44

A market economy assumes that producers have free choice about all of the following, EXCEPT

A) the markets in which they will compete
B) the level of quality at which they will manufacture goods
C) the quantity of goods consumers purchase
D) the type of good they will manufacture

Question 45

Autonomous economic actors are the foundation of which one of the following choices?

A) ethical theory
B) a market economy
C) the human condition
D) sole proprietorships

Question 46

A market economy is based on which one of the following choices?

A) the commands of a centralized authority
B) strong government intervention
C) the whims of individuals
D) the supply and demand of goods and services

Question 47

Each of the following ethical theories place significant value on autonomy, EXCEPT

A) deontology
B) utilitarianism
C) Confucian virtue
D) libertarianism

Question 48

Kermit is a newly employed project manager. Each morning, his supervisor meets with him and hands over a list of that day's expected tasks. After completing each task, his supervisor reviews his work before he can move to the next one. In this example, Kermit lacks which one of the following choices?

A) autonomy
B) engagement
C) competence
D) value

Question 49

Lakshmi believes that American society would be made better if government control were minimized and people were given greater freedom to choose for themselves. With which ethical theory does Lakshmi likely identify?

A) deontology
B) libertarianism
C) justice ethics
D) virtue ethics

Question 50

For the first time, Matteo is at the grocery store without his mother's supervision. Which of the following statements is based on Matteo's intrinsic satisfaction?

A) I might just buy a sugary breakfast cereal instead of a low-sugar, fiber-rich breakfast cereal!
B) I don't have to purchase vegetables today!
C) I'll let the employee bag my groceries instead of doing it myself!
D) I feel like an adult now that I can choose whatever I want!

Question 51

For the first time in her life, Nichole is living away from home, working a part-time job, and going to college. Which one of the following choices most likely will bring Nichole instrumental utility?

A) scheduling early morning classes at the behest of her work supervisor
B) choosing classes that provide meaning in her life
C) working the second shift because it is where she is needed most
D) deciding to major in business because it is her parents' wish

Question 52

Owen is discussing the idea of fake news with his roommate Pedro. Owen contends that it is generally harmless. Pedro disagrees. Which one of the following choices is Pedro's best and most compelling argument?

A) Consumers do not value free information as much as they once did.
B) In today's online world, false claims are not easily detected or exposed.
C) Complete and truthful information builds trust and fosters respect for others.
D) Consumers have little autonomy in where to get their news.

Question 53

Based on your reading, which one of the following assumptions would be shared between market economies and ethical theories?

A) People are autonomous actors and make rational decisions.
B) An optimal society is free of government intervention.
C) Human beings seek maximum output with as little input as possible.
D) Individuals and groups often act in opposition.

Question 54

Why is autonomy both instrumentally and intrinsically satisfying?

Question 55

Which economist contrasted the process of entrepreneurship with a static view of economics that provides the foundation for microeconomics?

A) Joseph Schumpeter
B) Adam Smith
C) John Maynard Keynes
D) Vilfredo Pareto

Question 56

When entrepreneurs create new products that solve real problems, the result is best described as which one of the following choices?

A) market equilibrium
B) economic development
C) a market "clearing"
D) intense competition

Question 57

What term did economist Joseph Schumpeter give to the arrival of new products on the market, either complementing or substituting for an existing product?

A) constructive decay
B) constant delay
C) creative destruction
D) coexisting devastation

Question 58

The first film camera was likely created in the early 1800s. With advancements in technology, the digital camera was built in the 1970s. Today, most photographs are taken on one's smartphone. Which of the following statements best describes this evolution?

A) The film camera was an innovation. The digital camera and the smartphone's photography features are inventions.
B) The film camera and the digital camera were innovations. The smartphone's photography features are an invention.
C) The film camera and the digital camera were inventions. The smartphone's photography features are an innovation.
D) The film camera was an invention. The digital camera and the smartphone's photography features are innovations.

Question 59

Over time, rideshare companies like Uber and Lyft have been replacing the use of taxis and privately owned transportation services. Which of the following terms best describes this process?

A) creative destruction
B) invention
C) static equilibrium
D) destructive creation

Question 60

Managers at Company Z believe that at some point during the year, the goods they produce will be consumed. This belief assumes which one of the following choices?

A) Entrepreneurs will enter the market.
B) Innovation will occur.
C) The world is static.
D) Demand is increasing.

Question 61

Quentin has been working for a traditional automobile dealership for several years. Frustrated by the traditional sales methods and the negotiation process, Quentin decides to create his own used-car dealership with unique selling propositions. Which one of the following choices best describes what we know about Quentin?

A) Quentin is an inventor.
B) Quentin can tolerate uncertain conditions.
C) Quentin has unrealistic expectations.
D) Quentin abhors competition.

Question 62

The creators of the first 3D printer were granted a patent for their innovation. Which of the following choices best describes how the manufacturer could charge high prices for its printers?

A) Production was limited.
B) Production was abundant.
C) Competition was limited.
D) Competition was nonexistent.

Question 63

Rhea and Simone are arguing the benefits and disadvantages of an entrepreneurial economy. Rhea believes the benefits outweigh the downfalls. Which of the following choices is Rhea's best argument?

A) The use of patents and trademarks results in lower prices for consumers.
B) Customer and societal needs and wants are satisfied.
C) The market will "clear" once it reaches equilibrium.
D) Fewer producers will control valuable resources.

Question 64

Rhea and Simone are arguing the benefits and disadvantages of an entrepreneurial economy. Simone believes the benefits are not worth the downfalls. Based on your reading, which of the following choices is Simone's best argument?

A) Unemployment levels may rise when innovation substitutes for existing products.
B) Customer and societal needs and wants are left unsatisfied.
C) The market will "clear" once it reaches equilibrium.
D) A greater number of producers will control valuable resources.

Question 65

Briefly describe "creative destruction" and give a real-world example.

Question 66

In moral terms, the promise of a market economy is the preservation of individual autonomy and the maximization of which one of the following choices?

A) total utility
B) societal wealth
C) production
D) consumption

Question 67

Which economic term describes the state in which no person can be made better off without someone else being worse off?

A) Pareto inefficiency
B) Pareto optimality
C) market equilibrium
D) social indifference

Question 68

Which ethical theorist stated that income disparities are unjust only when income inequalities leave those who are worse off in an intolerable position?

A) Immanuel Kant
B) Aristotle
C) John Rawls
D) John Stuart Mill

Question 69

You and three friends order a large pizza that is cut into eight slices. Each of you takes two pizza slices. In economic terms, this is referred to as which one of the following choices?

A) social indifference
B) market equilibrium
C) Pareto inefficiency
D) Pareto optimality

Question 70

Suppose you have 10 apples and 10 oranges to give to your friends Trevor and Uma. Trevor likes both fruits equally, and Uma prefers oranges. Which of the following results in Pareto optimality?

A) Give Trevor 10 apples and Uma 10 oranges.
B) Give Trevor 10 oranges and Uma 10 apples.
C) Give Trevor and Uma each 5 apples and 5 oranges.
D) Give Trevor 10 oranges and 10 apples.

Question 71

Vivian believes that disparities in income levels should be tolerated because they are good for society. Which one of the following arguments would Vivian most likely make to support her beliefs?

A) Most people are comfortable with wealth gaps.
B) Many entrepreneurs are motivated by wealth.
C) CEOs are paid only when company investors do well.
D) An equal distribution of wealth does not maximize individual utility.

Question 72

Winston believes that disparities in income levels have no moral basis. Which one of the following arguments best supports Winston's beliefs?

A) Most people are uncomfortable with wealth gaps.
B) Deontology suggests that every human should have an equal income.
C) An unequal distribution of wealth objectifies people.
D) An equal distribution of wealth does not maximize societal utility.

Question 73

Like John Rawls, Xavier believes in the ethic of justice as fairness. Which one of the following arguments would Xavier make to assert that income disparities have no moral basis?

A) Most people are uncomfortable with wealth gaps.
B) An equal distribution of wealth does not maximize societal utility.
C) Income inequality fails to treat others with the respect they are due as members of the human family.
D) Income inequality is tolerable if the poorest have adequate means to meet their own needs.

Question 74

Which one of the following statements best describes market economies, inequalities, and ethical harms?

A) When the rich get richer, it may create more total utility than a more equal distribution.
B) Maximizing societal utility is the same as everyone maximizing their own utility.
C) Most people are comfortable with gaps in individual wealth.
D) Closing wealth gaps has few societal consequences.

Question 75

Craft an argument for or against the problem of economic inequality in a market economy.