Question 1

Economist Jack Hirshleifer notes that,"Altruism economizes on the costs of policing and enforcing contracts." Since economics assumes that people act in a self-interested manner,what could he possibly mean?

Accepted Answer

Increased trust between contracting parties reduces the level of expected opportunistic behavior and contracting costs.As a result,monitoring costs decline.Thus,more contracts are made,and gains from trade increase.

Question 2

In the United States,there are numerous organizations,some sponsored by business and others that are independent of business,that monitor the behavior,the product quality,and the service provided by businesses.What role do these organizations have in the process of promoting ethical behavior?

Accepted Answer

These intermediaries help promote ethical behavior.They provide a monitoring function and thus help ensure product quality,etc.The public places trust in third-party monitors that have good reputations such as Moody's,Consumer Reports,etc.These organizations also help disseminate information about the businesses they are monitoring.Third-party monitors increase the efficiency of the marketplace.

Question 3

Economist Milton Friedman argued that the goal of corporations should be "to make as much money for its owners as possible while conforming to the basic rules of society." What does this mean in terms of corporate ethical behavior?

Accepted Answer

Friedman advocates keeping business deals within the law and satisfying basic expectations of acceptable business dealing (honesty,etc.).This means that it usually is more efficient for the corporation to focus on creating wealth and to let its shareholders,employees,and customers choose the beneficiaries of their charitable contributions.By maximizing their shareholders' (or owners')wealth,corporations can effectively enlarge the pool of individual (noncorporate)resources available for charity.

Question 4

Ralph Nader has long argued that large corporations in oligopolistic markets should use their vast productive powers to redress social ills.Implementing this policy may put companies:

Accepted Answer

Ralph Nader's proposal to use productive powers for social good may put companies in conflict with the process of wealth maximization, as their primary goal is to increase profits for shareholders. This approach may require redirecting resources and investing in social initiatives that may not have an immediate payoff or financial return, which could lead to tension when companies prioritize social responsibility over maximizing profits. However, this does not necessarily put them in conflict with the government, trade unions, or international policies.

Question 5

Johnson & Johnson,a personal care products company,has a four-tiered credo or mission.In order,it states its relationship to customers,employees,communities,and finally stockholders.This credo seems to have improved the ethical standards of this corporation.Why doesn't it conflict with wealth creation?

Accepted Answer

The answer of Johnson & Johnson,a personal care products company,has...

Question 6

To design a value-increasing architectural system we need:

Accepted Answer

To design a value-increasing architectural system, there should be internal consistency between assigning decision rights, evaluating performance, and sanctioning unethical behavior. This ensures that the system is functioning effectively and ethically. A clear partition between these aspects may lead to confusion and inconsistencies in the system. Top management should oversee and ensure that these aspects are aligned with the organization's values and goals. Therefore, option D is the best choice.

Question 7

According to Kantian theory on ethics:

Accepted Answer

Kantian ethics emphasizes the importance of the intention behind actions, valuing good deeds as inherently ethical regardless of the outcomes.

Question 8

According to the theory of economic Darwinism,in the absence of barriers to entry,firms that survive in the long run are those that:

Accepted Answer

According to the theory of economic Darwinism, firms that survive in the long run are those that deliver products that consumers want at the lowest cost. This is because consumers are always looking for the best products at the lowest prices, and firms that can deliver that will be successful in the long run. Providing productivity-based incentives to employees or following ethical practices are not necessarily related to survival in the long run. Additionally, not competing on quality may lead to inferior products that consumers will not value as highly, which could harm the long-term viability of a firm.

Question 9

Compensating differentials for employees can be seen as one measure of adjusting for:

Accepted Answer

The answer of Compensating differentials for employees can be seen...

Question 10

Economist Milton Friedman argued that ethical behavior followed and practiced by organizations is the same as:

Accepted Answer

Milton Friedman believed that the only social responsibility of a business is to maximize profits for its shareholders. He argued that ethical behavior by businesses is equivalent to wealth maximization, as it is ultimately in the best interest of the company and its shareholders. Therefore, the ethical behavior of an organization should align with the goal of maximizing wealth.

Question 11

The text notes that many firms that use animals in production or advertising adopt the animal treatment standards of the American Society for Prevention of Cruelty to Animals.Why do companies adopt a professional group's standard of behavior?

Accepted Answer

The answer of The text notes that many firms that...

Question 12

Value maximization leads to predictable resource misallocation when the firm:

Accepted Answer

When a firm has monopoly power in the market, its goal of maximizing profits may result in the misallocation of resources, as it can charge higher prices and reduce output to maximize profits without facing competition. This can lead to inefficiencies and harm consumer welfare. Therefore, value maximization is not the best strategy for a monopolist, and alternative policies such as regulating prices or promoting competition may be needed to achieve allocative efficiency.

Question 13

Ethics is about making good decisions.Sometimes it is hard to see what economics has to do with ethics until you remember that economics is often defined as the:

Accepted Answer

Economics is the science of choice, meaning it is concerned with how individuals, businesses, and governments make decisions about how to allocate scarce resources. These decisions have ethical implications, as they can impact the well-being and interests of different individuals and groups. Therefore, understanding economics is essential to making informed, ethical decisions in various contexts, such as in business, policy-making, and personal finance.

Question 14

Martha Stewart seems to have made a bad decision concerning the use of insider information in selling ImClone stock.The resulting negative publicity on the issue caused the value of her corporation,Martha Stewart Living,to fall by almost half.This example is supposed to show that:

Accepted Answer

Martha Stewart's example shows that even a successful and wealthy individual can suffer significant consequences when their actions are deemed unethical. This highlights the importance of ethical behavior in creating and maintaining long-term wealth and success.

Question 15

Ethics codes in corporate life tend to emphasize (a)compliance with laws and regulations,(b)honesty and integrity,and (c)avoidance of conflicts of interests.Which one is the most important in today's world? How does economics help in understanding its importance?

Accepted Answer

The answer of Ethics codes in corporate life tend to...

Question 16

Identify the correct statement regarding business ethics.

Accepted Answer

Business ethics and organizational architecture are interdependent because the ethical standards and values adopted by an organization are reflected in its structure, policies, and practices. A company's architecture should support and promote ethical behavior and decision-making.

Question 17

In a situation where customers will never be seen again:

Accepted Answer

If customers will never be seen again, sellers potentially have little incentive to provide high-quality products or fair pricing, as they do not need to maintain a good reputation for repeat business. This can lead to sellers cheating on price or quality.

Question 18

Corporate social responsibility may require changing the mission of the company to a 'constrained' wealth maximization.Is it possible for a few firms in the marketplace to shift their objective functions in this way? Why?

Accepted Answer

The answer of Corporate social responsibility may require changing the...

Question 19

The key mission that most economists ascribe to a firm's managers is to:

Accepted Answer

The primary goal of a firm's managers is to maximize the value of the firm, which typically involves maximizing profits, increasing market share, and creating shareholder value. While following ethical behavior and regulations are important, they are secondary to the firm's main goal of creating value. Hiring a large number of employees may be beneficial, but it is not the key mission of the managers.

Question 20

What are some mechanisms for encouraging ethical behavior?

Accepted Answer

The answer of What are some mechanisms for encouraging ethical...

Quiz 22: Ethics and Organizational Architecture