Business And Its Environment 7th Edition by Baron – Test Bank

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Business And Its Environment 7th Edition by Baron – Test Bank

Chapter Two:

Integrated Strategy

 

True/False Questions:

 

1)    A business strategy serves as a firm’s navigational guide in its market and nonmarket environments.

Answer: True

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

2)    A firm that decides to enter a country that has open markets relies primarily on a nonmarket strategy.

Answer: False

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

3)    A firm that decides to enter a country that has erected trade barriers requires only a simple market strategy.

Answer: False

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

4)    Opportunities can be controlled by government at one extreme and markets at the other extreme.

Answer: True

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

5)    Nonmarket strategies are more important when opportunities are controlled by markets.

Answer: False

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

6)    Government exercises relatively little control over pharmaceutical firms and their activities.

Answer: False

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

7)    Opportunities can be controlled by actions such as protests, boycotts, and public criticism.

Answer: True

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

8)    The more intense is private politics, the more important is the nonmarket strategy.

Answer: True

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

9)    Issues such as the environment, sustainability, human rights, privacy, health, and safety seldom attract private politics but are the subject of public politics.

Answer: False

Page reference: 32

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

10)  When a firm chooses a market strategy and a nonmarket strategy, the strategies compete with the strategies of other participants in the market.

Answer: True

Page reference: 32

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

11)  Nonmarket strategy is essential because in its absence competitors in the nonmarket environment will influence the outcome of issues and shape the rules of the game to their advantage.

Answer: True

Page reference: 32

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

12)  If a firm addresses the nonmarket issue in the legislative stage, the firm has more flexibility and its range of alternatives is wider.

Answer: False

Page reference: 33

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

13)  Nonmarket strategies serve the objective of superior performance by developing and sustaining the competitive advantage required to take advantage of market opportunities.

Answer: False

Page reference: 34

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

14)  A synergy is present between market and nonmarket strategies if a nonmarket action increases the return from a market action.

Answer: True

Page reference: 36

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

15)  Nonmarket positioning should be a conscious choice rather than dictated by a firm’s market positioning or by those in its environment.

Answer: True

Page reference: 38

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

16)  The pharmaceutical companies tend to seek visibility rather than covering their activities through an association or other means.

Answer: False

Page reference: 40

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

17)  Positioning in political space affects the opportunity to participate effectively in lawmaking and rule-making processes.

Answer: True

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

18)  Positioning in legal space affects not only the liabilities to which a company is exposed but also a company’s market and nonmarket strategies.

Answer: True

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

19)  Expertise in dealing with the news media is a market asset.

Answer: False

Page reference: 42

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

20)  The value of a nonmarket capability depends on the effectiveness of a firm’s allies in addressing nonmarket issues.

Answer: True

Page reference: 43

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

21)  The framework for analysis of nonmarket issues includes the screening of generated alternatives, the analysis of those alternatives, and the choice of a strategy.

Answer: True

Page reference: 43

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

22)  Moral motivations are analyzed in the screening phase of analysis.

Answer: False

Page reference: 44

Difficulty: Easy

AACSB:

Learning Outcomes:

 

23)  Granted rights are to be used to screen out alternatives in the analysis stage, whereas claimed rights are to be evaluated in the screening stage.

Answer: False

Page reference: 44

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

24)  The responsibility for addressing nonmarket issues should reside with operating managers and not with a separate staff unit.

Answer: True

Page reference: 46

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

25)  The nonmarket environment is often more complex than the market environment, because public institutions are complex and a larger set of interests participate.

Answer: True

Page reference: 46

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

Multiple Choice Questions:

 

26)  A market strategy is ________

  1. a concerted pattern of actions taken in the market environment to create value by improving the firm’s economic performance
  2. a concerted pattern of actions taken in the nonmarket environment to create value by improving the overall performance of a firm
  3. an elaborate and systematic plan of actions to achieve successful market capitalization
  4. usually never used by firms that decide to enter a country that has open markets or trade barriers

Answer: A

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

27)  A firm that decides to enter a country that has open markets relies primarily on ________.

  1. a nonmarket strategy
  2. a market strategy
  3. a communist economic strategy
  4. a mercantile strategy

Answer: B

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

28)  Opportunities can be controlled by ________ at one extreme and ________ at the other extreme.

  1. competitors; customers
  2. customers; suppliers
  3. government; markets
  4. markets; buyers

Answer: C

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

29)  Governments often exercise considerable control over which of the following industries?

  1. consumer electronics
  2. software
  3. local telecommunications
  4. automobile

Answer: C

Page reference: 31

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

30)  Which of the following industries has the least government control?

  1. Local communications service
  2. Biotechnology
  3. Automobile
  4. Consumer electronics

Answer: D

Page reference: 31

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

31)  In the United States, the regulation of telecommunications is being replaced by ________.

  1. nationalization
  2. market competition
  3. monopolization
  4. privatization

Answer: B

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

32) Which of the following characterizes nonmarket strategies?

  1. They are less important when opportunities are controlled by government.
  2. They are important when opportunities are controlled by markets.
  3. They are less important when protests, boycotts, and public criticism are more intense.
  4. They are decreasingly important due to issues such as privacy and protection of IP.

Answer: B

Page reference: 31

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

33)  Which of the following issues is most often the subject of private politics?

  1. intellectual property protection
  2. privacy
  3. liability reform
  4. antitrust laws

Answer: B

Page reference: 32

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

34) Which of the following issues is most often the subject of public politics?

  1. environmental laws
  2. human rights
  3. health and safety
  4. copyright laws

Answer: D

Page reference: 32

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

35)  Which of the following is the first stage of the nonmarket issue life cycle?

  1. issue identification
  2. interest group formation
  3. legislation
  4. administration

Answer: A

Page reference: 33

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

36)  The nonmarket strategies focus on adaptation to change during which of the following stages in the nonmarket issue life cycle?

  1. interest group formation
  2. legislation
  3. administration
  4. enforcement

Answer: B

Page reference: 33

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

37) Which of the following is the final stage of the nonmarket issue life cycle?

  1. interest group formation
  2. legislation
  3. administration
  4. enforcement

Answer: D

Page reference: 33

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

38) Which of the following is an example of a global market strategy?

  1. universal ethics principles
  2. intellectual property rights enforcement
  3. tax policy
  4. pharmaceuticals approval

Answer: A

Page reference: 33

Difficulty: Moderate

AACSB: Ethical Reasoning

Learning Outcomes:

 

39) The most effective means of integrating market and nonmarket strategies is ________.

  1. to incorporate nonmarket strategy formulation into the process of developing a market strategy
  2. to incorporate market strategy formulation into the process of developing a nonmarket strategy
  3. to incorporate both into the business strategy process
  4. to view both as separate strategies unified by the goal of profit maximization

Answer: C

Page reference: 37

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

40)  Which of the following is true of nonmarket positioning?

  1. a) It should be dictated by a firm’s market positioning or by those in its environment.
  2. b) It provides a platform on which both market and nonmarket strategies can be constructed.
  3. c) It is not influenced by the firm’s market strategy.
  4. d) It should neither be a conscious nor a strategic choice.

Answer: B

Page reference: 38

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

41)  ________ is determined by the diverse interests, viewpoints, and preferences of the individuals in a society.

  1. a) Ethnic diversity
  2. b) Corporate social responsibility
  3. c) Public sentiment
  4. d) Public relations

Answer: C

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

42) Lawmaking and rulemaking take place in ________, where the formal rules of the game are made.

  1. a) political space
  2. b) legal space
  3. c) social place
  4. d) the space of public sentiment

Answer: A

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

43) In legal space, ________ provide the most important protection for intellectual property for many industries.

  1. a) trademarks
  2. b) patents
  3. c) copyright laws
  4. d) logos

Answer: B

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

44) What space had Microsoft largely ignored, relying instead on its aggressive approach to markets?

  1. a) legal
  2. b) public sentiment
  3. c) political
  4. d) commercial

Answer: A

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

45) Positioning is often perilous. Which of the following companies had been lobbied heavily to increase its commitment to its own causes?

  1. a) Xerox
  2. b) GM
  3. c) Microsoft
  4. d) Starbucks

Answer: D

Page reference: 42

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

46) Firms deploy nonmarket capabilities to ________.

  1. a) beat the competition
  2. b) create new markets
  3. c) test new strategies
  4. d) add value

Answer: D

Page reference: 42

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

47) Alternatives that are contrary to the law or company policy are eliminated in the ________ stage of the framework for the analysis of nonmarket issues.

  1. analysis
  2. choice
  3. enforcement
  4. screening

Answer: D

Page reference: 43

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

48) Which of the following stages in the framework for the analysis of nonmarket issues is based on the methods of economics, political science, and other social sciences and focuses on predicting the actions of interests and the consequences of alternative strategies?

  1. identification
  2. analysis
  3. choice
  4. screening

Answer: B

Page reference: 44

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

49) The evaluations of ethics claims and the application of normative principles occur in which stage of the framework for the analysis of nonmarket issues?

  1. screening
  2. identification
  3. analysis
  4. choice

Answer: D

Page reference: 44

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

50) According to Wartick and Rude, who, among the following, must be involved for successful issues management?

  1. competitors
  2. government
  3. suppliers
  4. top management

Answer: D

Page reference: 44

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

Essay and Review Questions:

 

  • Describe market and nonmarket strategies. Explain the significance of a nonmarket strategy.

Answer: A business strategy has both market and nonmarket components. A market strategy is a concerted pattern of actions taken in the market environment to create value by improving the economic performance of a firm. A nonmarket strategy is a concerted pattern of actions taken in the nonmarket environment to create value by improving overall performance. A firm that decides to enter a country that has open markets relies primarily on a market strategy. A firm that decides to enter a country that has erected trade barriers needs a nonmarket strategy in addition to a market strategy. An effective business strategy integrates these two components and tailors them to the firm’s market and nonmarket environments as well as to its capabilities. Market and nonmarket strategies focus on the pursuit of opportunity and advantage in the face of market and nonmarket competition with the objective of achieving superior performance.

The importance of a nonmarket strategy is related to the control of a firm’s opportunities. Opportunities can be controlled by government at one extreme and markets at the other extreme. Nonmarket strategies are more important the more opportunities are controlled by government and are less important, but often still important, when opportunities are controlled by markets. In some industries, such as consumer electronics and computer software, government exercises relatively little control over firms and their activities. In contrast, government exercises considerable control over pharmaceuticals and local telecommunications services. The automobile industry is somewhere in between. One important role of nonmarket strategy is to unlock opportunities controlled by government, as illustrated by the strategies of firms to deregulate the telecommunications industry. Another important role of nonmarket strategy is to avoid the control of opportunities by government, as in the case of self-regulation by companies on Internet privacy protection. In addition to government and markets, two other factors affect opportunities. First, opportunities can be controlled by private politics, which includes actions such as protests, boycotts, and public criticism by activist, advocacy, and interest groups, as well as public sentiment regarding business. The more intense is private politics, the more important is nonmarket strategy. Second, opportunities can be affected by moral concerns, which can require restraint.

Page reference: 30-32

Difficulty: Moderate

AACSB: Analytic Skills

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

 

52)  Bartlett and Ghoshal characterized market strategies as multidomestic, international, and global. Compare and contrast between the three types.

Answer: Bartlett and Ghoshal characterize market strategies as multidomestic (multinational), international, and global. A global market strategy is one in which “products and strategies are developed to exploit an integrated unitary world market.” Global market strategies often focus on achieving cost advantages through global-scale operations, as exemplified by Honda’s early strategy of selling the same motorcycles in all the markets it entered. In the nonmarket environment, examples of global strategies are (1) working for free trade globally, (2) applying universal ethics principles, and (3) implementing the same environmental standards in all countries.

An international strategy centers on transferring the parent company’s expertise to foreign markets. eBay, for example, took its online auction service to other countries, with mixed success. International strategies are specific applications of distinctive competences in other countries.

For many nonmarket issues, a global or international nonmarket strategy may not be successful because strategies must take into account the institutions in whose context the issues are addressed, the organization of interests, and other country-specific factors. Many nonmarket issues have a strong domestic component, so nonmarket strategies are more likely than market strategies to be multidomestic when issues, institutions, and interests differ across countries.

The success of a multidomestic strategy requires issue-specific action plans tailored to the institutions and the organization of interests in individual countries. Examples of nonmarket issues that require a multidomestic approach include tax policy, antitrust policy, safety regulation, pharmaceuticals approval, intellectual property rights enforcement, and environmental regulation. Although there are common principles, such as information provision as the key to effective lobbying, that underlie the strategies used to address these issues, differences in the institutions across countries typically require country-specific strategies.

Page reference: 33-34

Difficulty: Moderate

AACSB: Dynamics of the Global Economy

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

53)  Describe the different approaches to integrate market and nonmarket strategies.

Answer: One approach to developing an integrated strategy is to incorporate nonmarket strategy formulation into the process of developing a market strategy. For example, regulation pertaining to who may provide services, as in telecommunications, could be incorporated into the analysis of the rivalry among incumbent firms and potential new entrants. The drawback to this approach is that the institutions in which regulatory policies are established are quite different from markets, so the nature of the analysis is different. Moreover, in markets only the parties that transact play a role, whereas in nonmarket institutions, a wide range of interests are enfranchised to participate.

Market and nonmarket strategies could also be viewed as separate. Just as market analysis focuses on competitive forces, nonmarket analysis can focus on assessing threats (such as those arising from government, interest groups, and activist pressures) and on unlocking market opportunities. Viewing nonmarket issues as a separate force, however, risks missing the interrelationships between market and nonmarket issues and the complementarities between strategies to address those issues.

The most effective means of integrating market and nonmarket strategies is to incorporate both into the business strategy process. That is, market and nonmarket strategies should be chosen together in addressing forces in the market and nonmarket environments.

The nonmarket strategy component then focuses on specific nonmarket issues that affect market threats and opportunities and on nonmarket actions as complements to market actions.

For some companies such as those in the pharmaceutical industry, integrated market and nonmarket strategies are a conscious part of everyday management. For other companies

Strategy formulation is periodic but nevertheless when market strategies must be developed, nonmarket strategies should be developed at the same time.

Page reference: 37

Difficulty: Moderate

AACSB: Analytic skills

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

54)  Explain, with examples, the nonmarket positioning that takes place in public sentiment, political and legal spaces.

Answer: Nonmarket positioning takes place in three interrelated spaces: public sentiment, political (lawmaking and rule making), and legal (enforcement of existing laws and regulation).

Public sentiment is determined by the diverse interests, viewpoints, and preferences of the individuals in a society. Public sentiment toward a company or industry can affect the public’s response to a company’s actions and whether social pressure is directed at the company. Favorable public sentiment can not only allow a company to avoid nonmarket issues, but also affect its reception in the market place. Chrysler and General Motors had to be bailed out by the government, whereas Ford avoided bankruptcy during the financial crisis and recession. Some car buyers favored Ford, and the company had more credibility with the public and government.

Lawmaking and rule making take place in political space, where the formal rules of the game are made. Positioning in political space can affect the opportunity to participate effectively in lawmaking and rule-making processes. Because of the importance of nonmarket issues to the profitability of the industry, the pharmaceutical industry has developed a position of strength in political space. The industry has positioned itself by building relationships with members of Congress and the executive branch. This positioned the industry well for the politics and negotiations over health care reform in 2009 and 2010. Major pharmaceutical companies were invited to the bargaining table, and the reforms were favorable to the industry, leading it to support the health care reform legislation. In contrast, the generic pharmaceutical companies were not invited to the bargaining table.

Positioning in legal space affects not only the liabilities to which a company is exposed but also a company’s market and nonmarket strategies. eBay’s positioning as an ISP provides protection in the United States under the CDA, but it also means that the company is limited in its ability to provide content on its Web site. In legal space, patents provide the most important protection for intellectual property for many industries, and perhaps nowhere are patents more important than in the pharmaceutical industry. The pharmaceutical industry regularly seeks stronger patent protection and was successful in obtaining a 6-month patent extension for approved drugs that were subsequently tested for use by children.

Page reference: 41

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

55) Illustrate, with examples, the framework for the analysis of nonmarket issues.

Answer: Nonmarket issues are typically complex and require conceptual frameworks to guide analysis and strategy formulation. In this framework the unit of analysis is the nonmarket issue. The initial step involves generating strategy alternatives. Managers must exercise creativity in generating alternatives beyond those that immediately suggest themselves. For example, to spur the use of mobile devices, Google proposed opening the C-band of the radio spectrum and the white spaces of the television for the development of open networks for mobile devices. As an alternative to higher fuel economy standards, General Motors advocated a tax on carbon fuels as a means of addressing the global climate change issue.

Once alternatives have been identified, they can be evaluated in three stages—screening, analysis, and choice. In the screening stage, alternatives that are contrary to the law, widely shared ethics principles, or a well-evaluated company policy are eliminated.

In the case of the automobile industry, an alternative involving noncompliance with mandatory NHTSA safety standards would be screened out. Several automobile companies, however, have routinely paid a fine, as provided for by law, for not meeting fuel economy standards.

The alternatives that remain after the screening stage are then analyzed to predict their likely consequences. The analysis stage is based on the methods of economics, political science, and other social sciences and focuses on predicting the actions of interests and the consequences of alternative strategies. For example, pharmaceutical companies had to predict how strong the opposition to their direct-to-consumer advertising in the broadcast media might be. Prediction focuses on interests, institutions and their officeholders, and information and takes into account the likely actions of the other interested parties. The analysis stage also considers moral motivations of nonmarket behavior and how others evaluate the firm’s actions.

The alternatives are evaluated and a choice made in the third stage. On issues that do not involve significant moral concerns, choice is based on the interests of the firm and its stakeholders. The objective is typically value creation, taking into account the impact of alternatives on stakeholders who are important to sustainable performance. If the issue involves significant moral concerns, normative principles pertaining to well-being, rights, and justice are to be applied.

In the nonmarket environment, moral claims about rights are frequently made. Some rights are “granted” in the sense that the government or moral consensus has both established them and clearly assigned the associated duty to respect them. When the duty has not been clearly assigned or the right itself has not been established by government or through moral consensus, the right is said to be “claimed.” Granted rights are to be used to screen out alternatives in the first stage, whereas claimed rights are to be evaluated in the choice stage.

Page reference: 43-44

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

Chapter Twelve:

Environmental Management and Sustainability

 

True/False Questions:

 

1)         Population growth and economic growth are the two most important factors contributing to the increase in greenhouse gas emissions.

Answer: True

Page reference: 322

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

2)         Aggregate well-being does not take into account the harm from an externality and the social costs of reducing that harm.

Answer: False

Page reference: 324

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

3)         Command-and-control regulation does not impose uniform controls and standards on dissimilar sources of pollution.

Answer: False

Page reference: 324

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

4)         The Coase theorem pertains to market imperfections, including externalities and public goods.

Answer: True

Page reference: 324

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

5)         The Coase theorem implies that when bargaining between two parties to an externality is possible, social efficiency can be achieved.

Answer: True

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

6)         From the Coasean perspective, social efficiency is a problem only when there are no impediments to bargaining.

Answer: False

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

7)         A market is the logical extension of a decentralized system in which entitlements are assigned and can be traded.

Answer: True

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

8)         Due to the very high transaction costs, automobile emissions are controlled through private regulations.

Answer: False

Page reference: 327

Difficulty: Easy

AACSB: Reflective thinking skills

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

9)         The Coase theorem does not apply to a tradable permits system.

Answer: False

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

10)       The first component of the control of an externality in a tradable permits system involves reflecting in the prices of goods and services, the costs of abatement and the social costs of the harm from the remaining pollution.

Answer: False

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

11)       An emissions tax is considered superior to a tradable permits system because it is impossible to know the amount of abatement in advance with a permits system.

Answer: False

Page reference: 328

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

12)       An emissions tax is favored by some economists because it is transparent and easy to implement compared to having to develop a market.

Answer: True

Page reference: 328

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

13)       In a cap-and-trade system, companies are charged hefty fees for the permits.

Answer: False

Page reference: 328

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

14)       The Kyoto Protocol had strong backing in the U.S. Senate, which in 1997 adopted a resolution in support of the protocol.

Answer: False

Page reference: 330

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

15)       With the growing scientific evidence indicating global climate change, the George W. Bush administration made the political and economic choice to support the Kyoto Protocol.

Answer: False

Page reference: 330

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

16)       The Kyoto Protocol targets expire in 2014.

Answer: False

Page reference: 330

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

17)       When the Obama administration took office, its EPA declared that CO2 and other greenhouse gases were pollutants and subject to regulation.

Answer: True

Page reference: 331

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

18)       Political leaders and economists all over the world are of the opinion that the Kyoto Protocol was widely successful.

Answer: False

Page reference: 331

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

19)       The signatories to the Kyoto Protocol agreed to use an emissions permits trading system to reduce the cost of achieving their commitments.

Answer: True

Page reference: 332

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

20)       Kyoto mechanisms referred to credits bought by countries to help finance projects in developing countries that would reduce greenhouse gases.

Answer: True

Page reference: 332

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

21)       The Regional Greenhouse Gas Initiative (RGGI) was formed to operate a cap-and-trade system for reducing greenhouse gases emissions.

Answer: True

Page reference: 332

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

22)       The EPA was created by an executive order of President Clinton to control greenhouse gas emissions by the developing countries.

Answer: False

Page reference: 333

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

23)       The EPA enforcement process requires the filing of a notice of a complaint and a hearing before an administrative law judge.

Answer: True

Page reference: 334

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

24)       EPA regulation has largely been command and control, in which uniform rules or standards are ordered and then enforced.

Answer: True

Page reference: 335

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

25)       The NIMBY movement focuses on local environmental concerns, particularly as they involve possible risks to person or property.

Answer: True

Page reference: 341

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

Multiple Choice Questions:

 

26)       The Environmental Protection Agency defines ________ as that which creates and maintains the conditions under which humans and nature can exist in productive harmony, that permit fulfilling the social, economic and other requirements of present and future generations.

  1. a) stability
  2. b) sustainability
  3. c) an ecosystem
  4. d) the Superfund

Answer: B

Page reference: 321

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

27)       Although the concept of sustainability is appealing, it is subject to two principal issues, ________ and ________.

  1. a) the lack of private initiatives; high budget deficits
  2. b) how to increase the current employment rate; the challenges of attracting foreign investments
  3. c) how to think about population growth; the difficulty of predicting future technological progress and innovation
  4. d) the slow growth of the renewable energy industry; the difficulty in curbing emissions of greenhouse gases in developing countries

Answer: C

Page reference: 321

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

28)       Social efficiency is attained when ________.

  1. a) aggregate well-being is minimal
  2. b) aggregate economic inequities are maximal
  3. c) aggregate well-being is maximal
  4. d) aggregate costs negative externalities are maximal

Answer: C

Page reference: 324

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

29)       ________ take(s) into account the benefits and costs of attaining environmental objectives and achieve those objectives by aligning the social and private costs of pollution and its abatement.

  1. a) Life-expectancy approach
  2. b) Supply-chain approach
  3. c) Command-and-control regulations
  4. d) Incentive approaches

Answer: D

Page reference: 324

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

30)       The Coase Theorem pertains to ________.

  1. a) distributive objectives and social justice
  2. b) energy, forests, and the environment more generally
  3. c) ecosystems, climate change, pollution, and habitats
  4. d) market imperfections, including externalities and public goods

Answer: D

Page reference: 324

Difficulty: Easy

AACSB:

Learning Outcomes: Describe the components of the control process

 

31)       Which of the following is a distinctive trait of incentive approaches?

  1. a) Incentive approaches impose a cost on pollution-causing activities, leaving it to individual polluters to decide how best to respond.
  2. b) Incentive approaches attain social efficiency by requiring polluters to externalize the social costs of pollution externalities.
  3. c) Incentive approaches does not take into account the benefits and costs of attaining environmental objectives.
  4. d) Incentive approaches centralize pollution-control decisions.

Answer: A

Page reference: 324

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

32)       ________ prohibits other parties from infringing the entitlement without the consent of the party holding it.

  1. a) The Environmental Protection Agency rule
  2. b) The Clean Air Interstate Rule (CAIR)
  3. c) A property rule
  4. d) A liability rule

Answer: C

Page reference: 324

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

33)       Which of the following is true of the Coase theorem?

  1. a) It pertains to distributive objectives and social justice.
  2. b) It addresses the private attainment of social efficiency and the conditions for its attainment.
  3. c) It implies that when bargaining between the parties to an externality is possible, social efficiency cannot be achieved.
  4. d) It underrates the role of government in assigning entitlements to private parties.

Answer: B

Page reference: 325

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

34)       From the Coasean perspective, social efficiency is a problem only when there are impediments to ________.

  1. a) growth
  2. b) bargaining
  3. c) expansion
  4. d) diversification

Answer: B

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

35)       Due to the ________, automobile emissions are controlled through government regulation.

  1. a) exorbitant costs associated with private bargaining
  2. b) unwillingness of businesses to curb air pollution
  3. c) low negative externalities associated with air pollution
  4. d) general disagreement on the impacts of automobile emissions on the environment

Answer: A

Page reference: 327

Difficulty: Easy

AACSB:

 

 

36)       ________ have become an effective means of achieving environmental goals at the least cost to society.

  1. a) Command-and-control regulations
  2. b) Incentive-based systems
  3. c) Life-expectancy approaches
  4. d) Supply-chain approaches

Answer: B

Page reference: 327

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

37)       Cap-and-trade systems are also called ________.

  1. a) market systems
  2. b) governmental systems
  3. c) life-expectancy systems
  4. d) tradable permits systems

Answer: D

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

38)       ____________ cap(s) the total allowed emissions of a particular pollutant and issue permits for that amount.

  1. a) Life-expectancy systems
  2. b) Command-and-control regulations
  3. c) Tradable permits systems
  4. d) The Superfund

Answer: C

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

39)       The control of an externality in a tradable permits system has three components. The first component ________.

  1. a) is allowing parties to respond to incentives by choosing the most efficient means of abatement
  2. b) is providing incentives for abatement by internalizing the cost of the harm done by the pollution.
  3. c) involves reflecting in the prices of goods and services, the costs of abatement

and the social costs of the harm from the remaining pollution.

  1. d) is allowing states to decide how best to decrease dangerous air pollution in the most cost effective manner.

Answer: B

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

40)       The third component of the control of an externality in a tradable permits system ________.

  1. a) is allowing parties to respond to incentives by choosing the most efficient means of abatement
  2. b) involves providing incentives for abatement by internalizing the cost of the harm done by the pollution.
  3. c) involves reflecting in the prices of goods and services, the costs of abatement

and the social costs of the harm from the remaining pollution.

  1. d) is allowing states to decide how best to decrease dangerous air pollution in the most cost effective manner.

Answer: C

Page reference: 327

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

41)       The Clean Air Act Amendments of 1990 addressed efficiency through a tradable permits system and the distributive consequences were addressed through a number of special provisions called ________.

  1. a) permits
  2. b) allowances
  3. c) incentives
  4. d) credits

Answer: B

Page reference: 328

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

42)       The Kyoto Protocol is associated with ________.

  1. a) reducing unemployment globally
  2. b) privatization of the renewable energy industry
  3. c) global climate change
  4. d) the prevention of oil spillage in oceans

Answer: C

Page reference: 330

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

43)       The signatories to the Kyoto Protocol agreed to use a(n) ________ to reduce the cost of achieving their commitments.

  1. a) life-expectancy system
  2. b) emissions permit trading system
  3. c) greenhouse gases reporting system
  4. d) command-and-control system

Answer: B

Page reference: 332

Difficulty:

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

44)       Kyoto mechanisms referred to credits bought by countries to ________.

  1. a) help finance projects in developing nations that would encourage the usage of coal and oil
  2. b) help reduce the rate of unemployment in developing countries
  3. c) help finance projects in developing nations that would reduce greenhouse gases
  4. d) help developing nations diversify their businesses

Answer: C

Page reference: 332

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

45)       Which of the following is true with regard to the Regional Greenhouse Gas Initiative (RGGI)?

  1. a) RGGI was formed to deal with the United State’s solid waste disposal crisis.
  2. b) RGGI failed to generate any funds through auctions.
  3. c) In 2006, 35 U.S. states formed the RGGI to address the problem concerning the fast-dwindling capacity of the nation’s landfills.
  4. d) The failure of RGGI to affect environmental goals led states to consider withdrawing from the initiative.

Answer: D

Page reference: 333

Difficulty:

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

46)       Which of the following is true with regard to the Environmental Protection Agency (EPA)?

  1. a) The EPA typically seeks involuntary compliance.
  2. b) The EPA enforcement process does not require the filing of a notice of a complaint and a hearing before an administrative law judge.
  3. c) The EPA is responsible for administering the Food Quality Protection Act of 1996.
  4. d) The EPA was created by an executive order of President Clinton to control greenhouse gases emissions by the developing countries

Answer: C

Page reference: 333

Page reference: 334

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

47)       Which of the following is true with regard to the EPA enforcement process?

  1. a) The EPA does not have the authority to forward cases to the Department of Justice.
  2. b) As a rule, the EPA enforcement process does not allow the federal government to seek both civil and criminal convictions of polluters.
  3. c) The EPA enforcement process requires the filing of a notice of a complaint and a hearing before an administrative law judge (ALJ).
  4. d) Typically, the EPA seeks involuntary compliance.

Answer: C

Page reference: 334

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

48)       The EPA administers the ________ for the cleanup of existing toxic waste disposal sites.

  1. a) Solid Waste Cleanup Fund
  2. b) Superfund
  3. c) Resource Conservation and Recovery Act of 1976
  4. d) Toxic Substances Control Act of 1976

Answer: B

Page reference: 337

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

49)       Most of the costs of environmental protection are borne by __________.

  1. a) the government
  2. b) private parties
  3. c) the EPA
  4. d) solid waste disposal board

Answer: B

Page reference: 338

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

50)       Which of the following is true about NIMBY?

  1. a) The primary objective of the NIMBY movement is to eradicate unemployment in the United States.
  2. b) The NIMBY movement focuses on local environmental concerns, particularly as they involve possible risks to person or property.
  3. c) The primary objective of the NIMBY movement is to lobby for greater subsidization for renewable energy.
  4. d) The NIMBY movement focuses on eradicating poverty in developing countries.

Answer: B

Page reference: 341

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

Essay and Review Questions:

 

51)       Write a short note on the Coase theorem.

Answer: The Coase theorem pertains to market imperfections, including externalities and public goods. It focuses on the standard of social efficiency and provides a conceptual foundation for both regulation and the liability system. The theorem does not address other standards, such as distributive objectives and social justice, that could be used in evaluating alternative social arrangements and public policies. Coase’s (1960) original exposition focused on externalities. Coase observed that an externality is reciprocal in the sense that at least two parties are required. In the case of noise pollution, there would be no externality without the polluter or in the absence of anyone to hear the noise. The Coase theorem states that, in the absence of transactions costs that would impede the bargaining over these private agreements, the socially efficient outcome can be realized if the entitlement is assigned to either party. The role of government thus is to clearly assign entitlements to the parties and allow them to reach private agreements that internalize the externality. Although social efficiency is attained with either assignment of the entitlement, the assignment affects the distribution of the social costs of the externality and its control.

Page reference: 324

Page reference: 325

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

52)       State and explain the different components of the control of an externality in a tradable permits system.

Answer: The control of an externality in a tradable permits system has three components. The first is providing incentives for abatement by internalizing the cost of the harm done by the pollution. The second is allowing parties to respond to those incentives by choosing the most efficient means of abatement. These means include reducing output, installing pollution-control equipment, redesigning products and production processes to reduce the pollution generated, and reducing the harm from emissions, as when oil refineries create safety zones around their facilities. The third component involves reflecting in the prices of goods and services, the costs of abatement and the social costs of the harm from the remaining pollution. This allows consumers to take into account the full social cost of the goods they consume. These three components operate simultaneously. An equilibrium results when (1) all advantageous trades have been made, (2) emitters have taken the abatement measures they prefer given the market price of permits, and (3) the quantities of products consumers purchase result in total emissions equal to the number of permits issued.

Page reference: 327

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

53)       How did the United States of America respond to the Kyoto protocol? What were the principal approaches adopted by the United States of America with respect to the protocol?

Answer: In 1998 the Clinton administration signed the Kyoto Protocol on global climate change, which called for country-specific reductions in domestic carbon dioxide emissions averaging 5.2 percent from 1990 levels by 2012. The U.S. target was a 7 percent reduction from 1990 levels. The protocol had strong opposition in the Senate, which in 1997 adopted a resolution opposing the protocol unless developing countries, particularly China and India, made firm commitments to reduce their emissions. President Clinton chose not to submit the protocol to the Senate for ratification. The Clinton administration argued that the Kyoto agreement would have little effect on costs, but the Department of Energy predicted that gasoline prices would increase by nearly 40 percent and electricity prices between 20 and 86 percent in real terms by 2010. President Bush announced that the United States would not ratify the Kyoto Protocol, and instead a voluntary approach was adopted with a 2012 goal of an 18 percent reduction in emission per unit of GDP. The Obama administration sought to establish a national cap-and-trade system, and soon after taking office introduced legislation. Many U.S. businesses participated with environmental groups in the U.S. Climate Action Partnership (USCAP), which had actively sought cap-and-trade

regulation of greenhouse gases. As the climate bill began to work its way through Congress, lawmakers were forced to be specific about provisions of the bill.

Page reference: 330

Page reference: 331

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

54)       Write short notes on The Regional Greenhouse Gas Initiative (RGGI).

Answer: RGGI was formed in 2005 by 10 northeastern U.S. states to operate a cap-and-trade system for reducing greenhouse gases emissions. RGGI began operating in 2008, and auctioned 86 percent of the allowances generating $790 million through 2010. Most of the funds generated in the auctions were used by the states to fund energy efficiency programs and renewable power, as well as providing subsidies for low-income ratepayers. RGGI was supported by companies that benefited from the funds generated by the auctions, but other companies argued that it drove up costs and drove jobs away. The price of allowances had been set very low, and the recession reduced emissions below the RGGI cap, resulting in a price of allowances at the minimum allowed of $1.89 a ton of emissions. In addition the price of natural gas fell, and power companies burned gas instead of oil or coal, reducing emissions. RGGI had accomplished little in the way of emissions reductions. The failure of RGGI to affect environmental goals led states to consider withdrawing from the initiative.

Page reference: 332

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

55)       Write a short note on the Superfund outlining its significance.

Answer: The EPA administers the Superfund for the cleanup of existing toxic waste disposal sites. Estimates placed the number of sites requiring Superfund cleanups as high as 20,000, and cost estimates were as high as $600 billion. Under the Superfund program the EPA attempts to identify the source of the dumping and force it to clean the site. If the EPA does the cleanup, it can go to court to recover the costs. In 2010 the EPA secured nearly $1.6 billion from private parties. As of 2010 the EPA had completed work on 1,098 of the over 1,627 sites on the National Priorities List and another 475 were “site wide ready for anticipated use.” The Superfund program has been criticized both for moving too slowly and for spending funds where there was little hope of a successful cleanup. In recent years the pace of cleanup of toxic waste sites has increased. Of the $30 billion spent by business and government on the Superfund program, however, a third is estimated to have gone to lawyers in litigation over who is liable for the cleanup costs. Another criticism of the program is that it requires the same cleanup level of all sites, regardless of their future use or the costs of cleanup. In addition to the litigation costs the Superfund has been criticized for its “retrospective liability” feature that requires companies to pay for the cleanup of wastes that had been disposed of legally. The Clinton administration responded to this criticism by proposing to exempt small firms. The criticisms and disagreements over the Superfund caused its congressional reauthorization to be mired in politics for most of the 1990s, and the taxes imposed on firms to fund the program expired in 1995. The Superfund is now financed by the federal budget and by fees imposed on identified polluters. Approximately 70 percent of the cleanup costs are paid by the party held responsible for the pollution with the rest paid by the government.

Page reference: 337

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

Chapter Twenty Four:

Ethics in International Business

 

True/False Questions:

 

  • Interactions between nations and foreign firms are governed by the laws of the host nation and by international law.

Answer: True

Page reference: 681

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

2)         Cultural relativism in its strongest form holds that appropriate behavior in a country or culture is determined by its own laws and customs

Answer: True

Page reference: 684

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

3)         “If corruption is widespread in a country, then a firm should accept the functioning system and act as domestic firms do”. This statement exemplifies cultural imperialism.

Answer: False

Page reference: 684

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

4)         Ethics principles are to be culturally determined rather than universal.

Answer: False

Page reference: 684

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

5)         Cultural imperialism in its strongest form means that in operating internationally a firm maintains the standards of its home country and judges others by those standards.

Answer: True

Page reference: 684

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

6)         Donaldson argues that all nations, firms, and individuals do not have a duty to respect the freedom of physical movement.

Answer: False

Page reference: 685

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

7)         Ethics issues can arise from the policies of governments.

Answer: True

Page reference: 686

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

8)         The Calabresi and Melamed principles do not inquire which party is best positioned to induce others to take actions that will improve the difference between social benefits and social costs.

Answer: False

Page reference: 687

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

9)         When misuse can be anticipated, marketing a product to those who are likely to misuse it may constitute deception.

Answer: True

Page reference: 687

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

10)       The Fair Labor Association (FLA) is a government-administered institution that aims at eliminating corruption.

Answer: False

Page reference: 689

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

11)       The FLA code does not provide for a “living wage.”

Answer: True

Page reference: 689

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

12)       Proof that a firm’s competitors offered customary payments to a client provides moral justification for the practice.

Answer: False

Page reference: 691

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

13)       In a situation in which payments are either demanded or likely to be required to obtain a sale, ethics is not a source of guidance for firms and their managers.

Answer: False

Page reference: 691

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

14)       From a utilitarian perspective, bribery distorts markets and reduces economic efficiency.

Answer: True

Page reference: 691

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

15)       Bribes are expected to indirectly benefit the least advantaged persons.

Answer: False

Page reference: 692

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

16)       Casuist reasoning argues that an unethical action is justified by the benefits it provides to stakeholders.

Answer: True

Page reference: 692

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

17)       Gert’s test for when an injustice is warranted to avoid a greater injustice requires that a rational observer would understand the reason for the action.

Answer: True

Page reference: 693

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

18)       Bribery involves transactions costs because both parties must conceal the payments and take measures to justify the selection.

Answer: True

Page reference: 693

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

19)       From the perspective of rule utilitarianism, if a purely self-interested company offers a bribe to a customer, a matching bribe by its competitor is morally justified.

Answer: False

Page reference: 694

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

20)       Under the FCPA, it is unlawful to make any “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of anything…” to influence a decision, omit a required action, or give “any improper advantage” to the company.

Answer: True

Page reference: 694

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

21)       The Foreign Corrupt Practices Act (FCPA) does not make bribery of foreign officials a criminal offense.

Answer: False

Page reference: 694

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

22)       In addition to prohibiting bribery of government officials, the United Kingdom Bribery Act prohibits bribes paid to private companies.

Answer: True

Page reference: 695

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

23)       In addition to providing guidance to managers and sales representatives, company policies also establish a basis for a response when a government official or a customer demands a payment.

Answer: True

Page reference: 696

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

24)       The OECD Anti-Bribery Convention pertains to private-to-private bribery and does not impose record-keeping obligations on business.

Answer: False

Page reference: 698

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

25)       The OECD Anti-Bribery Convention does not view small “facilitation” payments that are not made to “obtain or retain business” as an offense.

Answer: True

Page reference: 698

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

Multiple Choice Questions:

 

26)       Ethics principles are intended to be ________.

  1. a) country specific
  2. b) orthodox
  3. c) unconventional
  4. d) universal

Answer: D

Page reference: 681

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

27)       Which of the following is true with regard to international law?

  1. a) International law consists of national laws that pertain to foreign persons, entities, and other nations.
  2. b) International law does not include intergovernmental treaties and agreements.
  3. c) International law does not include rulings by international courts.
  4. d) Sanctions in international law are highly credible and enforcement is rarely left to individual nations.

Answer: A

Page reference: 681

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

28)       Which of the following is a national law?

  1. a) the Kyoto Protocol
  2. b) the Foreign Corrupt Practices Act
  3. c) the North American Free Trade Agreement
  4. d) the Geneva Convention

Answer: B

Page reference: 681

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

29)       International law differs from domestic law in that ________.

  1. a) international law is arbitrary and does not command respect
  2. b) in international law, sanctions are highly credible
  3. c) in international law, sanctions may not be credible and enforcement is often left to individual nations.
  4. d) in international law, sanctions are enforced by the International Criminal Court

Answer: C

Page reference: 682

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

30)       Firms that operate internationally are subject to ________.

  1. a) only the laws of their home country
  2. b) only the laws of the host country
  3. c) only international trade agreements
  4. d) laws of their home country as well as the host country

Answer: D

Page reference: 683

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

31)       In considering countries and cultures, Sen (1997) warned against generalizations that “hide more than they reveal.” He advocated the recognition of ________.

  1. a) the importance of taking a static view of cultures
  2. b) the necessity of recognizing heterogeneity within given communities
  3. c) the importance of restricting social change
  4. d) the need to encourage stereotypes in order to create a strong organizational culture

Answer: B

Page reference: 684

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

32)       ________ in its strongest form means that in operating internationally a firm maintains the standards of its home country and judges others by those standards.

  1. a) Ethical leadership
  2. b) Paternalism
  3. c) Cultural imperialism
  4. d) Cultural relativism

Answer: C

Page reference: 684

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

33)       According to Donaldson, which of the following rights is subject to cultural interpretation?

  1. a) ownership of property
  2. b) speech and association
  3. c) fair trial
  4. d) physical security

Answer: A

Page reference: 685

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

34)       Which of the following is true with regard to the challenges faced by companies operating in developing countries?

  1. a) In developing countries, the liability system assigns the social cost of injuries to producers and consumers.
  2. b) In developing countries, poverty, lack of education, and inadequate health care create situations in which individuals cannot be expected to make the same decisions that would be made in a developed country.
  3. c) Developing countries are twice as vulnerable as developed countries to natural calamities causing considerable difficulties to companies operating in those countries
  4. d) In developing countries, regulation establishes safety standards and requires information and warnings about hazards.

Answer: B

Page reference: 686

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

35)       ________ are intended to be applied in situations in which institutions are imperfect, entitlements and their protection are unclear, or transactions costs prohibit bargaining to resolve the issue.

  1. a) Pareto’s principles
  2. b) Donaldson’s guidelines for “ethical leadership”
  3. c) The Calabresi and Melamed principles
  4. d) The “Five Modernizations”

Answer: C

Page reference: 687

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

36)       Which of the following is true with regard to the Fair Labor Association (FLA)?

  1. a) The FLA code of workplace standards does not cover forced labor.
  2. b) The FLA code of workplace standards does not cover collective bargaining.
  3. c) The FLA code does not provide for a “living wage.”
  4. d) The FLA lacks the characteristics of a government institution.

Answer: C

Page reference: 689

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

37)       ________ is an act of paying an individual in an organization with the intention of influencing that person’s exercise of his or her responsibilities;

  1. a) Lobbying
  2. b) Bribery
  3. c) Extortion
  4. d) Casuistry

Answer: B

Page reference: 691

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

38)       In a situation in which payments are either demanded or likely to be required to obtain a sale, managers should first consider ________.

  1. a) national trade policies
  2. b) corporate codes of conduct
  3. c) international laws
  4. d) ethics

Answer: D

Page reference: 691

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

39)       From a utilitarian perspective, bribery ________.

  1. a) encourages competition leading to increased output
  2. b) distorts markets and reduces economic efficiency
  3. c) is reversible
  4. d) is morally justified

Answer: B

Page reference: 691

Difficulty: Easy

AACSB: Ethical Understanding and Reasoning Abilities

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

40)       Which of the following is true with regard to bribe payments?

  1. a) A rule under which bribes are allowed is universalizable.
  2. b) Competition is most efficient when bribes replace value and merit as the basis for decisions.
  3. c) Bribes paid to government officials undermine the impartiality of government and hence the equality of political rights.
  4. d) Bribes are expected to indirectly benefit the least advantaged persons.

Answer: C

Page reference: 692

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

41)       Which of the following examples illustrates the weakness of act utilitarianism?

  1. a) Firm A refrains from accepting bribes even if that decreases its aggregate utility.
  2. b) Firm A takes Firm B’s practice of offering bribes as a given and offers a matching bribe because that increases its aggregate utility.
  3. c) Firm B believes that offering a bribe is ethical because it boosts competition.
  4. d) Firms A and B consider bribery ethical in situations where a rational observer would understand the reason for the action.

Answer: B

Page reference: 693

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

42)       Which of the following is true with regard to the Foreign Corrupt Practices Act (FCPA)?

  1. a) The FCPA prohibits payments to private businesses.
  2. b) Under the FCPA, it is lawful to offer gifts to influence a decision of a company.
  3. c) The FCPA does not provide imprisonment for an individual making a payment or offer covered by the act.
  4. d) The FCPA makes bribery of foreign officials, political parties, candidates for office, and public international organizations a criminal offense.

Answer: D

Page reference: 695

Difficulty: Moderate

AACSB: Ethical Understanding and Reasoning Abilities, Analytic Skills

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

43)       In addition to prohibiting payments to government officials and private companies, the ________ prohibits “grease payments,” or facilitating payments, even if they do not affect decision making by government employees such as those that provide routine services.

  1. a) FCPA
  2. b) UK Bribery Act
  3. c) Kyoto Protocol
  4. d) Sherman Act

Answer: B

Page reference: 695

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

44)       The extent to which a firm encounters demands for payments in a host country depends on its ________.

  1. a) lines of business
  2. b) organizational talent pool
  3. c) potential to acquire smaller companies
  4. d) annual sales forecast

Answer: A

Page reference: 695

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

45)       Which of the following is true of the Omnibus Trade and Competitiveness Act of 1988 that amended the Foreign Corrupt Practices Act?

  1. a) A payment to a foreign individual became legal under the act even if it was illegal in the foreign country.
  2. b) The language of the act was clarified to indicate that payments that secured performance of routine government actions, such as signing customs documents and unloading or loading cargoes, were illegal.
  3. c) The amendments provided firms with a number of affirmative defenses, including consistency with host country laws and legitimate business expenses.
  4. d) If a payment were legal in the foreign country, the defendant in an action brought under the act could not use that legality as a defense.

Answer: C

Page reference: 695

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

46)       Which of the following is true with regard to the UK Bribery Act?

  1. a) The UK Bribery Act legalizes “grease payments.”
  2. b) The UK Bribery Act prohibits bribe paid to private companies.
  3. c) Under the law, an employee cannot be held guilty of bribery if the person was unaware of it.
  4. d) The UK Bribery Act does not prohibit bribery of government officials,

Answer: B

Page reference: 695

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

47)       Which of the following is a principal purpose of company codes?

  1. a) increase output
  2. b) discourage self-disclosure and whistle-blowing
  3. c) make it easier for employees to say no to demands for pay
  4. d) maintain status quo

Answer: C

Page reference: 695

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

48)       Which of the following is true with regard to the OECD Anti-Bribery Convention?

  1. a) The Convention requires signatories to make the act of bribery and the making of other forms of illicit payments to foreign public officials a criminal offense, whether paid directly or indirectly.
  2. b) Small “facilitation” payments that are not made “to obtain or retain business” are viewed as an offense.
  3. c) According to the Convention, the definition of a foreign public official excludes officials of public agencies and public enterprises at least 50 percent owned by the government.
  4. d) The Convention pertains to private-to-private bribery.

Answer: A

Page reference: 698

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

49)       In 1999, the European Union enacted a ________ that made criminal offenses of active bribery and passive bribery (extortion) that gives any “undue advantage” of domestic and foreign public officials and of private sector personnel.

  1. a) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
  2. b) Criminal Law Convention on Corruption
  3. c) The Cummins’s Act
  4. d) Foreign Corrupt Practices Act

Answer: B

Page reference: 698

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

50)       Some managers argue that bribes are required because of extortion by government officials or bribes offered by competitors. In such cases, the injustice standard is applicable and requires that the manager ask whether, ________.

  1. a) if the payment were publicly disclosed, the publics in the host and home country would agree that it should have been paid
  2. b) if the payment increased aggregate utility
  3. c) if a fraction of the payment were used in charitable purposes
  4. d) if the payment were made in response to a competitor’s payment and if it positively impacted the annual revenue

Answer: A

Page reference: 699

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 


Essay and Review Questions:

 

51)       According to Donaldson, what are the three general principles that should guide companies in their global business activity?

Answer: The following three principles should guide companies in their global business activity:

  1. Respect for core human values (human dignity, respect for basic rights, and good citizenship), which determine the absolute moral threshold for all business activities.
  2. Respect for local traditions.
  3. The belief that context matters when deciding what is right and wrong.

Page reference: 685

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

52)       What are Donaldson’s five guidelines to ethical leadership?

Answer: Donaldson offers five guidelines for “ethical leadership”:

  1. Treat corporate values and formal standards of conduct as absolutes.
  2. Design and implement conditions of engagement for suppliers and customers. 3. Allow foreign business units to help formulate ethics standards and interpret ethics issues.
  3. In host countries, support efforts to decrease institutional corruption.
  4. Exercise moral imagination.

Page reference: 685

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

53)       What are the sources of guidance for firms and their managers in a situation in which payments are either demanded or likely to obtain a sale? What does the ethics analysis focus on?

Answer: In a situation, in which payments are either demanded or likely to be required to obtain a sale, firms and their managers have two sources of guidance—one is ethics and the other is the law. Ethics is considered first, and then the law is presented and interpreted. Corporate codes of conduct are then considered.

The ethics analysis focuses on bribery and the question of when, if ever, a firm is morally justified in paying a bribe.

Page reference: 691

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

54)       For many managers who venture overseas to do business in the global marketplace, the challenge of facing some questionable practices and different ethical principles can be overwhelming. Discuss.

Answer: In developing countries, institutions are not always present to provide guidance to firms and their managers. Also, issues are more complex when people do not have the means to protect their rights and advance their interests. Poverty, lack of education, and inadequate health care create situations in which individuals cannot be expected to make the same decisions that would be made in a developed country. Furthermore, their governments may not have the means to provide the needed information, guidance, or regulation found in developed countries. In developed countries, for example, the liability system assigns the social cost of injuries to producers and consumers, creating incentives for care and the reduction of hazards. In addition, regulation establishes safety standards and requires information and warnings about hazards. If institutions are not present or function imperfectly in a developing country, business is without an important source of guidance. In such cases, the temptation may be to follow local practice. The consequences, however, may not be acceptable. Following local practice could lead to the exploitation of the ignorant and disadvantaged or the exposure of consumers or workers to hazards that they may not reasonably be able to avoid. Ethics provide guidance in such situations. Donaldson (1989, p. 116) addressed the issue of risks in developing countries and proposed a modification of Rawls’s second principle to guide decisions about risks. He argued that the “difference principle would need to be adjusted to include freedom from risk as one of the primary goods normally covered by the principle.” From this perspective, a basic level of safety should be assured for all individuals, which could mean that higher standards than those practiced in developing countries should be used. When misuse can be anticipated, marketing a product to those who are likely to misuse it may constitute deception. This would violate moral rules focusing on treating individuals as ends whose ability to choose should be developed rather than their ignorance exploited.

Page reference: 687

Difficulty: Difficult

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

55)       What role do company codes play in ensuring compliance with the FCPA and international conventions and in clarifying when foreign payments can be made and how they are to be accounted for?

Answer: Company codes have three principal purposes—to provide guidance to employees, make it easier for them to say no to demands for payment, and ultimately discourage demands for payments.

The extent to which a firm encounters demands for payments depends on its lines of business, the countries in which it does business, and its organization. Some industries and some countries are characterized by a functioning system in which bribery and facilitating payments are not uncommon. A firm’s lines of business and the countries in which it operates thus affect the scope of the problems it faces. That scope is also affected by the organizational structure of the firm. Firms can conduct their foreign business through a wholly owned subsidiary, a joint venture, a sales office that manages local dealers and distributors, or agents with whom the firm deals at arm’s length. Controlling and monitoring payments generally becomes more difficult and making questionable payments becomes easier, the more independent is the business unit or agent.

Company codes typically state the principal features of the FCPA; require that the representatives of the firm know the local laws and the functioning system in the country; distinguish between gratuities, facilitating payments, and bribes; and specify record-keeping and reporting requirements. A code may also provide guidance for handling a request for a payment and indicate to whom an employee can turn if a payment’s propriety is in question. Company policies not only provide guidance to managers and sales representatives, but they also establish a basis for a response when a government official or a customer demands a payment.

Page reference: 695

Page reference: 696

Difficulty: Difficult

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

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