Test Bank Ethics And A Market Economy Ch.14

Package Title: Godfrey Test Bank

Course Title: Ethics and Business WileyPLUS

Chapter Number 14

Question type: Multiple-Choice

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

Title: Chapter 14 Test Bank, Question 01

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Transaction costs can be thought of as the “economic equivalent of friction in physical systems.”

2) Transaction costs include all of the following, EXCEPT

a) policing and enforcement costs

b) production costs

c) search and information costs

d) bargaining costs

Title: Chapter 14 Test Bank, Question 02

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Transaction costs can be broken down into three categories: search and information costs, bargaining costs, and policing and enforcement costs.

3) 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

Title: Chapter 14 Test Bank, Question 03

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: When someone says, “My word is my bond,” they signal that they are a trustworthy business partner.

4) 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

Title: Chapter 14 Test Bank, Question 04

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Buyers and sellers incur transaction costs every time they exchange goods and services. An example is the processing fee charged in the purchase of concert tickets.

5) 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

Title: Chapter 14 Test Bank, Question 05

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: For consumers, search and information costs include the time, energy, and money they spend in finding products or services and establishing the relevant characteristics of a product, such as durability, fit, and quality.

6) 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.

Title: Chapter 14 Test Bank, Question 06

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: The money a firm spends on advertising and marketing is designed to help customers get the relevant information they need about what’s for sale, where, and when. For a firm, this represents a search and information cost.

7) 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

Title: Chapter 14 Test Bank, Question 07

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Bargaining costs include money, time, and energy spent haggling over the price of a product or service.

8) 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.

Title: Chapter 14 Test Bank, Question 08

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Fees charged by real estate brokers, stockbrokers, or financial services companies represent bargaining costs.

9) 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

Title: Chapter 14 Test Bank, Question 09

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Policing and enforcement costs are incurred when making sure all parties stick to an agreement.

10) 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.

Title: Chapter 14 Test Bank, Question 10

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Policing and enforcement costs are incurred when making sure all parties stick to an agreement. Quality control for incoming shipments is one type of policing cost.

11) 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.

Title: Chapter 14 Test Bank, Question 11

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Commitments to ethical behavior on the part of both buyers and sellers work to minimize but not eliminate transaction costs.

12) 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.

Title: Chapter 14 Test Bank, Question 12

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: When sellers abstain from exploiting their power in business relationships and view the other party with justice and equity, policing and enforcement costs fall dramatically.

13) 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.

Title: Chapter 14 Test Bank, Question 13

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Some bargaining costs will be minimized when buyers don’t have to worry about sellers exploiting conflicts of interest or information advantages.

14) 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.

Title: Chapter 14 Test Bank, Question 14

Difficulty: Hard

Bloomcode: Evaluation

Min: 3

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Transaction costs can be thought of as the “economic equivalent of friction in physical systems.”

Question type: Short Answer

15) How does ethical behavior reduce transaction costs in an economy?

Title: Chapter 14 Test Bank, Question 15

Difficulty: Moderate

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 14.1 Explain how ethical behavior reduces transaction costs in an economy.

Section Reference: Sec: 14.1 Ethical Behavior Helps Reduce Transaction Costs

Solution: Commitments to ethical behavior on the part of both buyers and sellers work to minimize, but not eliminate transaction costs. Basic search costs will still be present, but the commitments to honest and fair practices on the part of sellers make it easier for buyers to understand which products will fit their needs and the quality of those products. These costs, as well as some bargaining costs, will be minimized when buyers don’t have to worry about sellers exploiting conflicts of interest or information advantages. When sellers abstain from exploiting their power in business relationships and view the other party with justice and equity, policing and enforcement costs fall dramatically.

Question type: Multiple-Choice

16) 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

Title: Chapter 14 Test Bank, Question 16

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: 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” moves trust beyond a trait of individuals or organizations and sets trust within a relationship.

17) 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

Title: Chapter 14 Test Bank, Question 17

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Weak-form trust grows when neither party to the transaction is taking a big risk, such as putting one company’s valuable brand behind a transaction.

18) 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

Title: Chapter 14 Test Bank, Question 18

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Strong-form trust is also known as principled trust and is developed as trading partners engage with each other over time.

19) 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.

Title: Chapter 14 Test Bank, Question 19

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: A commitment to ethical behavior can encourage people to take risks in relationships with like others.

20) 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

Title: Chapter 14 Test Bank, Question 20

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Weak-form trust grows when neither party to the transaction is taking a big risk. It requires that both parties conform to basic ethical norms of behavior.

21) 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.

Title: Chapter 14 Test Bank, Question 21

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Weak-form trust grows when neither party to the transaction is taking a big risk. It requires that both parties conform to basic ethical norms of behavior.

22) 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

Title: Chapter 14 Test Bank, Question 22

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Semi-strong-form trust arises when parties put significant assets at risk but employ contracts or independent parties to resolve disputes or handle unexpected contingencies. The trading parties also rely on social mechanisms, such as shared norms and values or threats, to provide more powerful incentives to avoid violating the trust of the other party.

23) 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.

Title: Chapter 14 Test Bank, Question 23

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Semi-strong-form trust arises when parties put significant assets at risk but employ contracts or independent parties to resolve disputes or handle unexpected contingencies.

24) 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

Title: Chapter 14 Test Bank, Question 24

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Strong-form trust is also known as principled trust and is developed as trading partners engage with each other over time and observe the principled (ethical) behavior of their trading partner.

25) 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.

Title: Chapter 14 Test Bank, Question 25

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Strong-form trust is evident when the parties to an exchange put assets of significant value at risk because they believe that the other party will not exploit those vulnerabilities.

26) 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.

Title: Chapter 14 Test Bank, Question 26

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: When people and organizations operate in an environment of strong-form trust, they gain several advantages, one of which is greater creativity and improved innovation.

27) 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.

Title: Chapter 14 Test Bank, Question 27

Difficulty: Hard

Bloomcode: Evaluation

Min: e

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Strong-form trust, based on firm commitments to ethical behavior, underlies the development of community and shared values that reduce frictions in an economic system but also lead to a strong sense of community meaning and the deep relationships that characterize a PERMA life.

Question type: Short Answer

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

Title: Chapter 14 Test Bank, Question 28

Difficulty: Moderate

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 14.2 Distinguish among different types of trust and their impact on business performance.

Section Reference: Sec: 14.2 Ethics and the Economic Value of Trust

Solution: Buyers and sellers can develop one of three types of trust with each other. Weak-form trust grows when neither party to the transaction is taking a big risk. Each party is willing to put some assets at risk because even if things don’t go well, they don’t have much to lose. Weak-form trust reduces the transaction costs of search and information gathering.

Semi-strong-form trust arises when parties put significant assets at risk but employ standard governance mechanisms (e.g., contracts) to resolve disputes or handle unexpected contingencies. Semi-strong-form trust creates a competitive advantage by reducing the (often) substantial costs of contracting or enforcement through the court system, although both parties incur costs at the beginning to establish governance measures.

Strong-form trust is evident when the parties to an exchange put assets of significant value at risk because they believe that the other party will not exploit those vulnerabilities. Strong-form trust is developed as trading partners engage with each other over time and observe the principled (ethical) behavior of their trading partner. Strong-form trust not only reduces search, information, and policing/enforcement costs, but it also enables the parties to put at risk significant assets that can be used to create new value.

Question type: Multiple-Choice

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

a) business communities

b) religious institutions

c) educational institutions

d) neighborhoods

Title: Chapter 14 Test Bank, Question 29

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: The economic value of ethical behavior extends to communities as well, and the respect for individuals as subjects, a commitment to justice and fairness, and the principles of forgiveness and reconciliation all contribute to strong and vibrant trading communities.

30) The bonds between people that bring lasting satisfaction are known as

a) extrinsic relationships

b) intrinsic relationships

c) internal motivations

d) external motivations

Title: Chapter 14 Test Bank, Question 30

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: Ethical behavior strengthens intrinsic relationships, the bonds between people that bring lasting satisfaction.

31) Which philosopher believed in treating people like ends in themselves?

a) Adam Smith

b) John Stuart Mill

c) Immanuel Kant

d) John Rawls

Title: Chapter 14 Test Bank, Question 31

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: The idea of treating individuals as subjects, or ends in themselves, is a foundation of the deontological ethical theory of people like Immanuel Kant.

32) 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

Title: Chapter 14 Test Bank, Question 32

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: Ethical behavior improves efficiency as it reduces transaction costs for individuals and organizations and fosters the trust that can create innovation.

33) 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

Title: Chapter 14 Test Bank, Question 33

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: Ethical behavior creates an effective economy by meeting the deep needs of people—their desires for good products and services—and also by creating deeper engagement, better relationships, and higher levels of achievement.

34) 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.

Title: Chapter 14 Test Bank, Question 34

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: The idea of treating individuals as subjects, or ends in themselves, is a foundation of the deontological ethical theory of people like Immanuel Kant.

35) 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.

Title: Chapter 14 Test Bank, Question 35

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: The ethical issues of conflict of interest, bribery, power, and many questions of honesty stem from a view of others as objects to be used, not subjects to be respected as ends in themselves.

36) 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

Title: Chapter 14 Test Bank, Question 36

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: When we treat others with respect and as subjects, we often discover unmet economic needs for which we can develop products and services to satisfy.

37) 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

Title: Chapter 14 Test Bank, Question 37

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: When we show respect for others, we invite them to show respect for us.

38) 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

Title: Chapter 14 Test Bank, Question 38

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: Justice and fairness reduce transaction costs and build trust, especially strong-form trust.

39) 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.

Title: Chapter 14 Test Bank, Question 39

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: A commitment to ethics as fair treatment encourages people to bring their ideas and contribute to economic transactions with the confidence that the value they bring will be rewarded.

40) 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

Title: Chapter 14 Test Bank, Question 40

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: A commitment to justice will prove insufficient to create the lasting change American and other societies need. Forgiveness must work hand in hand with justice so that not only the economic and social impacts of wrongs can be redressed, but the emotional bitterness held by victims (and paradoxically perpetrators) also can be resolved and dissipate.

41) 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.

Title: Chapter 14 Test Bank, Question 41

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: Forgiveness and reconciliation cannot be legislated or forced; they must be given by, and to, all involved. Reconciliation is all about moving forward and will be critical as people learn to live together in trust.

42) 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.

Title: Chapter 14 Test Bank, Question 42

Difficulty: Hard

Bloomcode: Synthesis

Min: 3

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: Risk levels for reconciliation and strong-form trust are high and each requires the parties to interact over a significant period of time to develop trust.

Question type: Short Answer

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

Title: Chapter 14 Test Bank, Question 43

Difficulty: Moderate

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 14.3 Identify ethical actions business professionals can take to help build communities of business.

Section Reference: Sec: 14.3 Ethics and Strong Business Communities

Solution: Ethical behavior improves efficiency as it reduces transaction costs for individuals and organizations and fosters the trust that can create innovation. Ethical behavior creates an effective economy by meeting the deep needs of people—their desires for good products and services—and also by creating deeper engagement, better relationships, and higher levels of achievement.

Question type: Multiple-Choice

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

a) freedom

b) ethic

c) satisfaction

d) honesty

Title: Chapter 14 Test Bank, Question 44

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: Autonomy comes from the ancient Greek word, eleutheria, which means liberty or freedom.

45) 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

Title: Chapter 14 Test Bank, Question 45

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: One fundamental assumption of a market economy is that producers have free choice about the markets in which they will compete and what they will produce, and they select the level of quality and quantity at which they will produce.

46) 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

Title: Chapter 14 Test Bank, Question 46

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: Autonomous economic factors are the foundation of a market economy.

47) 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

Title: Chapter 14 Test Bank, Question 47

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: In a market economy, producers choose the level of quality and quantity at which they will produce based on the level of sales and prices at which households consume.

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

a) deontology

b) utilitarianism

c) Confucian virtue

d) libertarianism

Title: Chapter 14 Test Bank, Question 48

Difficulty: Moderate

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: Deontologists, utilitarians, and libertarians all value autonomy.

49) 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

Title: Chapter 14 Test Bank, Question 49

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: To make autonomous choices is to choose freely, without being coerced or controlled by someone else.

50) 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

Title: Chapter 14 Test Bank, Question 50

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: The ethical theory of libertarianism is built on the notion that the good society is one where people are left free to make most decisions about their lives and happiness. Governments and other institutions should provide the minimum support needed to facilitate freedom and impinge upon freedom as little as possible.

51) 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!

Title: Chapter 14 Test Bank, Question 51

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: The ability to make free choices provides both instrumental (freedom allows me to buy what I want) and intrinsic satisfaction (being free is valued in its own right).

52) 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

Title: Chapter 14 Test Bank, Question 52

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: Autonomy is intrinsically valuable, but it has instrumental utility that goes beyond merely choosing, for example, what products and services to purchase. Autonomy is the foundation of development, growth, and living a PERMA life.

53) 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.

Title: Chapter 14 Test Bank, Question 53

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: The market forces that encourage the production of complete information also make economic and social exchanges more valuable because they reduce transaction costs, build trust, and encourage the treatment of others as subjects worthy of respect.

54) 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.

Title: Chapter 14 Test Bank, Question 54

Difficulty: Hard

Bloomcode: Evaluation

Min: 3

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: Both market economies and ethical theories assume that people make choices freely and rationally.

Question type: Short Answer

55) Why is autonomy both instrumentally and intrinsically satisfying?

Title: Chapter 14 Test Bank, Question 55

Difficulty: Moderate

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 14.4 Describe the ways in which a market economy fosters personal development and growth.

Section Reference: Sec: 14.4 Market Economies: The Ethics of Personal Development

Solution: Most people would consider autonomy, the ability to make free choices, as producing both instrumental (freedom allows me to buy what I want) and intrinsic satisfaction (being free is valued in its own right). The instrumental utility of autonomy goes beyond merely choosing, for example, what products and services to purchase. It is the foundation of development, growth, and living a PERMA life. The assumption behind each of the PERMA elements is that an individual can choose for himself or herself the activities that yield the fruits of positive emotion, engagement, meaning, and achievement. Autonomy also allows people to develop, invest in, and sustain relationships of their own choosing that meet their deep needs.

Question type: Multiple-Choice

56) 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

Title: Chapter 14 Test Bank, Question 56

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: In the early part of the twentieth century, the economist Joseph Schumpeter contrasted the process of entrepreneurship with the static view of economics that provides the foundation for microeconomics.

57) 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

Title: Chapter 14 Test Bank, Question 57

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: When entrepreneurs create new products that solve real problems, the result is economic development.

58) 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

Title: Chapter 14 Test Bank, Question 58

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: According to Schumpeter, “creative construction” occurs when the economy moves from the static model of market equilibrium of planned production and consumption to one of dynamic movement and change, where new products come on the market and either complement or substitute for existing products.

59) 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.

Title: Chapter 14 Test Bank, Question 59

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: Invention is the creation of something brand new—a new product, process, or technology that was previously unknown. Innovation occurs when existing assets, processes, or products are used in different ways.

60) 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

Title: Chapter 14 Test Bank, Question 60

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: Creative destruction exists when the economy moves from the static model of market equilibrium of planned production and consumption to one of dynamic movement and change, where new products come on the market and either complement or substitute for existing products.

61) 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.

Title: Chapter 14 Test Bank, Question 61

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: In a static world, price signals for existing products help producers make decisions about the quantity they’ll produce and consumers decide how much they’ll purchase. When the economy reaches equilibrium, then the traditional model implies that the market will “clear” each year as the amount of a good produced will equal the amount consumed.

62) 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.

Title: Chapter 14 Test Bank, Question 62

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: Entrepreneurs are not constrained by current reality and are willing to operate in very uncertain conditions.

Question type: Multiple Select

63) 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.

Title: Chapter 14 Test Bank, Question 63

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: When a new product appears on the market, it has no rivals and so the entrepreneur may enjoy a season of high prices and equally high revenues.

Question type: Multiple Choice

64) 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.

Title: Chapter 14 Test Bank, Question 64

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: The benefits of a dynamic, entrepreneurial economy, and the social order that supports it, come in the form of a constantly evolving economy where new and unmet consumer needs and wants can be satisfied.

65) 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.

Title: Chapter 14 Test Bank, Question 65

Difficulty: Hard

Bloomcode: Evaluation

Min: 3

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: The disadvantages of a dynamic, entrepreneurial market economy arise from the profit motive: Market economies create huge disparities in wealth, and they work only when all parties can compete on equal terms.

Question type: Short Answer

66) Briefly describe “creative destruction” and give a real-world example.

Title: Chapter 14 Test Bank, Question 66

Difficulty: Moderate

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 14.5 Explain how market economies foster innovation through a process of “creative destruction.”

Section Reference: Sec: 14.5 Market Economies, Innovation, and Ethical Benefits

Solution: When entrepreneurs create new products that solve real problems, the result is economic development. The economy moves from the static model of market equilibrium of planned production and consumption to one of dynamic movement and change, where new products come on the market and either complement or substitute for existing products. Economist Joseph Schumpeter referred to this process as “creative destruction.” The driver of creative destruction is the potential for the entrepreneur to profit from their creativity and risk taking. When a new product appears on the market, it has no rivals and so the entrepreneur may enjoy a season of high prices and equally high revenues. Whether entrepreneurs create through innovation or invention, they often can utilize legal mechanisms such as patents, trademarks, and other protections for intellectual property that allow them to profit from their creations by forestalling competition. Real-world examples are numerous and include the smartphone, Netflix, Uber, digital media, and the personal computer.

Question type: Multiple-Choice

67) 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

Title: Chapter 14 Test Bank, Question 67

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in a market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: The promise of a market economy, in moral terms, is to preserve individual autonomy and try to maximize total utility.

68) 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

Title: Chapter 14 Test Bank, Question 68

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in a market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: An optimally functioning economy—a state known as Pareto optimality—is one where no person can be made better off (or have more utility) without someone else being worse off.

69) 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

Title: Chapter 14 Test Bank, Question 69

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: For John Rawls, an advocate in the ethic of justice as fairness, income disparities aren’t unjust per se, only when income inequality leaves those who are the worst off in an intolerable position.

70) 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

Title: Chapter 14 Test Bank, Question 70

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in a market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: An optimally functioning economy—a state known as Pareto optimality—is one in which no person can be made better off (or have more utility) without someone else being worse off.

71) 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.

Title: Chapter 14 Test Bank, Question 71

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in a market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: An optimally functioning economy—a state known as Pareto optimality—is one in which no person can be made better off (or have more utility) without someone else being worse off.

72) 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.

Title: Chapter 14 Test Bank, Question 72

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in a market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: Those who believe that income disparities have a moral basis assert that without the carrot of high pay and wealth, the best and brightest of society would not engage in the creative activities of entrepreneurship, thus depriving society of new, value-creating products.

73) 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.

Title: Chapter 14 Test Bank, Question 73

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in a market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: Unequal distributions of wealth objectify people. An informal societal attitude exists that ties individual status to wealth. The rich are perceived as “winners” and the poor as “losers” and thus not deserving of help.

74) 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.

Title: Chapter 14 Test Bank, Question 74

Difficulty: Moderate

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in a market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: For John Rawls, advocate in the ethic of justice as fairness, income disparities aren’t unjust per se, only when income inequality leaves those who are the worst off in an intolerable position. It’s okay for some to enjoy outsized wealth as long as the poorest among us have adequate means to meet their needs.

75) 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.

Title: Chapter 14 Test Bank, Question 75

Difficulty: Moderate

Bloomcode: Analysis

Min: 3

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in a market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: Paradoxically, providing more wealth to the rich (or the “rich get richer”) may create more total utility than a more equal distribution.

Question type: Short Answer

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

Title: Chapter 14 Test Bank, Question 76

Difficulty: Hard

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 14.6 Craft an argument for or against the problem of economic inequality in a market economy.

Section Reference: Sec: 14.6 Market Economies, Inequalities, and Ethical Harms

Solution: Student answers will vary but should include some of the following information. Those who argue that income disparities have a moral basis will include arguments that focus on the negative outcomes of attempts to remove these disparities. First, high levels of wealth that come from wise management of economic resources reflect the value those assets bring to our society. Second, the promise of those big paydays is the incentive and motivation for the hard work of executive management or entrepreneurship.

Those who argue that income disparities have no moral basis will include arguments that center on the impact of inequality itself. Income inequality, in this line of reasoning, fails to treat people with the dignity and respect due to each person as a member of the human family. Another aspect of unequal distributions of wealth objectifies people: A informal societal attitude exists that ties individual status to wealth. Others take the position that John Rawls advocates in the ethic of justice as fairness. For Rawls, income disparities aren’t unjust per se, only when income inequality leaves those who are the worst off in an intolerable position.