Chapter 5-6, Corporations and Consumers

Question 1

Corporations differ from partnerships and other forms of business association in two ways. One of these is that

Answer 1

they must be publicly registered or in some way officially acknowledged by the law.

Question 2

A common point of contention about corporations is

Answer 2

philosophers and business theorists disagree whether corporations are moral agents.

Question 3

T/F: Corporate internal decision (CID) structures amount to established procedures for accomplishing specific goals.

Answer 3

True

Question 4

The debate over corporate moral agency hinges on which question?

Answer 4

corporate punishment

Question 5

Milton Friedman argues that

Answer 5

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

Question 6

The “rules of the game” for corporate work are intended to

Answer 6

promote open and free competition

Question 7

The narrow view of corporate social responsibility argues companies must make money within the “rules of the game,” which rules out all of the following except for:

Answer 7

harm

Question 8

Corporations are limited-liability companies which means that

Answer 8

corporate shareholders are liable for corporate debts only up to the extent of their investments

Question 9

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

Answer 9

true

Question 10

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

Answer 10

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

Question 11

Which of the following do proponents of the broader view of corporate social responsibility believe?

Answer 11

Businesses have other obligations besides making a profit.

Question 12

T/F: According to Melvin Anshen, the case for a broad view of corporate responsibility can be defended on the basis of there always being a kind of social contract existing between business and society.

Answer 12

True

Question 13

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

Answer 13

true

Question 14

T/F: According to John Kenneth Galbraith, business’s social role is purely economic and corporations should not be considered moral agents.

Answer 14

true

Question 15

T/F: The idea that corporations will impose their values on us supports one of the arguments for the narrow view of corporate social responsibility.

Answer 15

true

Question 16

The best statement to describe corporations is

Answer 16

corporate culture can be both explicit and implicit.

Question 17

T/F: Recent studies have shown that neither corporate moral codes nor corporate culture affect whether individuals inside the corporation behave morally or immorally.

Answer 17

false

Question 18

T/F: It is not logical for corporations to acknowledge that business should be conducted morally.

Answer 18

false

Question 19

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

Answer 19

true

Question 20

T/F: Companies should look at a code of ethics as more than just window dressing with more than just a vagueness that is so general it lacks substance.

Answer 20

true

Question 21

T/F: Statistics indicate that the faith consumers place in manufacturers is often misplaced.

Answer 21

true

Question 22

The case of MacPherson v. Buick Motor Car in 1916 changed product liability law. As a result of it, the courts

Answer 22

expanded the liability of manufacturers for injuries caused by defective products

Question 23

T/F: Before the case of MacPherson v. Buick Motor Car in 1916, injured consumers could recover damages only from the retailer of the defective product.

Answer 23

true

Question 24

According to the legal doctrine of strict product liability,

Answer 24

a manufacturer need not be negligent to be held liable for a defective product.

Question 25

T/F: Due care is the idea that consumers and sellers do not meet as equals and that the consumer’s interests are particularly vulnerable to being harmed by the manufacturer, who has knowledge and expertise the consumer does not have.

Answer 25

true

Question 26

Which statement is true from an ethical perspective?

Answer 26

The argument for strict liability is basically utilitarian.

Question 27

In 1972, Congress created one of the most important agencies for regulating product safety. This agency is the

Answer 27

Consumer Product Safety Commission.

Question 28

Which statement is accurate in its description of consumer protection?

Answer 28

The Consumer Product Safety Commission has the power to order recalls, public warnings, and refunds.

Question 29

The consumer’s main source of product information is

Answer 29

the label and package

Question 30

T/F: The Fair Packaging and Labeling Act of 1966 empowers representative agencies to rank and list all ingredients in the order of decreasing percentage of total contents

Answer 30

false

Question 31

T/F: Business’ responsibility for understanding and providing for consumer needs derives from the fact that citizen-consumers are dependent on business to satisfy their needs.

Answer 31

true

Question 32

Advertising is best known for

Answer 32

the persuasion to purchase the product.

Question 33

T/F: The Federal Trade Commission (FTC) was established over seventy-five years ago to protect consumers against deceptive advertising

Answer 33

true

Question 34

T/F: Subliminal advertising is advertising that supposedly communicates at a level beneath our conscious awareness.

Answer 34

true

Question 35

T/F: A psychological appeal is one that aims to persuade by appealing primarily to reason and not to human emotional needs.

Answer 35

false

Question 36

The terms best, finest, and most are examples of

Answer 36

puffery

Question 37

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

Answer 37

ambiguity

Question 38

T/F: The FTC now follows the “modified” ignorant consumer standard and protects only those cases of foolishness that are committed by significant numbers of people.

Answer 38

true

Question 39

T/F: Defenders of advertising claim that, despite criticisms, advertising enjoys protection under the First Amendment as a form of speech.

Answer 39

true

Question 40

Critics of advertising contend that

Answer 40

advertising rarely gives consumers much useful information.

Question 41

caveat emptor

Answer 41

“let the buyer be aware”

Question 42

concealment of facts (in advertising)

Answer 42

When advertisers suppress information that is unflattering to their products, by neglecting to mention these facts or directing consumers’ attention away from the information.

Question 43

dependence effect

Answer 43

John Kenneth Galbraith’s term which refers to the loss of consumer sovereignty as societies become more affluent; the market controls the wants consumers have instead of consumers controlling the market through their purchases.

Question 44

consumer sovereignty

Answer 44

The idea that consumers should and do control the market through their purchases.

Question 45

FTC v. Standard Education

Answer 45

1937 case that moved the law away from the reasonable-person standard

Question 46

gullible-consumer standard

Answer 46

An FTC prohibition against advertising that might mislead someone who is ill-informed or naïve

Question 47

legal paternalism

Answer 47

The idea that the law may justifiably be used to restrict the freedom of individuals for their own good.

Question 48

MacPherson v. Buick Motor Car

Answer 48

1916 case that expanded the liability of manufacturers for injuries caused by defective products.

Question 49

merchantability

Answer 49

The law’s term for an implied warranty is the “implied warranty of merchantability,” which claims that in any sale that a product is fit for its ordinary intended use.

Question 50

price fixing, horizontal and vertical

Answer 50

Horizontal: When competitors agree to adhere to a set price schedule, not cut prices below a certain minimum, or to restrict price advertising or the terms of sales, discounts or rebates; Vertical: When manufacturers, as opposed to direct competitors, agree to set prices.

Question 51

price gouging

Answer 51

When a seller exploits a short-term situation in which buyers have few purchase options for a much needed product by raising prices substantially.

Question 52

psychological appeal (in advertising)

Answer 52

A persuasive effort aimed primarily at emotion, not reason.

Question 53

quantity surcharges

Answer 53

The practice of selling “economy size” items for a higher per unit price than their smaller counterparts.

Question 54

reasonable-consumer standard

Answer 54

An FTC prohibition against advertising claims that would deceive reasonable people. People who are taken in because they are more gullible or less bright than the average person would be unprotected.

Question 55

strict product liability

Answer 55

The doctrine that the manufacturer of a product has legal responsibilities to compensate the user of that product for injuries suffered because the product’s defective condition made it unreasonably dangerous regardless of whether the manufacturer was negligent in permitting that defect to occur.

Question 56

subliminal advertising

Answer 56

Advertising that communicates at a level beneath conscious awareness, where, some psychologists claim, the vast reservoir of human motivation primarily resides.

Question 57

warranties, express and implied

Answer 57

Obligations to purchasers that sellers assume. Express warranties are the claims that sellers explicitly state. Implied warranties include the claim, implicit in any sale, that a product is fit for its ordinary, intended use.

Question 58

weasel words

Answer 58

Words used to evade or retreat from a direct or forthright statement.