Chapter 2: Ethics and Business Decision Making 1
Chapter 2
Ethics and Business
Decision Making
True/False Questions
1.Ethics is the branch of philosophy that focuses on what constitutes right and wrong behavior.
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NAT: AACSB EthicsAICPA Critical Thinking
2.Ethics is not concerned with the philosophical basis for morality.
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NAT: AACSB EthicsAICPA Critical Thinking
3.Ethics is not concerned with the fairness or justness of an action.
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NAT: AACSB EthicsAICPA Critical Thinking
4.Business ethics focuses on ethical behavior in the business world.
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NAT: AACSB EthicsAICPA Risk Analysis
5.A business firm's profits may suffer if the firm acts unethically.
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6.Businesspersons who would choose to act unethically may be deterred from doing so because of public opinion.
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NAT: AACSB EthicsAICPA Critical Thinking
7.Business ethics is consistent only with short-run profit maximization.
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NAT: AACSB EthicsAICPA Critical Thinking
8.Managers must apply different standards to themselves than they apply to their employees.
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NAT: AACSB EthicsAICPA Critical Thinking
9.Setting realistic workplace goals can reduce the probability that employees will act unethically.
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10.To act ethically is to think narrowly about what is best in the short run for one’s employer.
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NAT: AACSB AnalyticAICPA Risk Analysis
11.Duty-based ethics may be based on religious precepts or philosophical reasoning.
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NAT: AACSB EthicsAICPA Critical Thinking
12.Under the principle of rights theory, one person’s set of values is as “right” as another’s.
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13.Ethical standards based on religious teachings tend to be absolute.
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14.Ethical reasoning is the process through which an individual rationalizes whatever action he or she chooses to take.
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15.Duty-based ethical standards imply that people have basic rights.
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NAT: AACSB EthicsAICPA Critical Thinking
16.If an action is ethical from an outcome-based perspective, it is always ethical from a duty-based perspective.
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17.In ethical terms, a cost-benefit analysis is an assessment of the negative and positive effects of alternative actions on individuals.
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NAT: AACSB EthicsAICPA Risk Analysis
18.Establishing which duties take priority over others determines a firm's views on corporate social responsibility.
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19.According to utilitarianism, an action that affects a minority adversely is morally wrong.
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20.According to utilitarianism, it does not matter how many people benefit from an act.
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21.Corporations can be perceived as owing ethical duties to groups other than their shareholders.
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22.An ethics program can clarify what a company considers to be unacceptable conduct.
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23.Corporations can behave as good citizens by promoting goals that society deems worthwhile.
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NAT: AACSB AnalyticAICPA Critical Thinking
24.Corporate ethical policies must be clearly communicated to be effective.
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25.Corporate ethical policies and programs must be integrated throughout the firm to be effective.
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26.In the interest of preserving personal freedom, the law codifies all ethical requirements.
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NAT: AACSB AnalyticAICPA Critical Thinking
27.An action may be unethical but legal.
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28.A business firm can sometimes predict whether a given action is legal.
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NAT: AACSB AnalyticAICPA Critical Thinking
29.Acting in good faith gives a business firm a better chance of defending its actions in court.
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30.To be ethical is to “do the right thing” but it does not otherwise “pay.”
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NAT: AACSB EthicsAICPA Critical Thinking
31.Ignorance of a law excuses a business from liability for its violation.
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32.A business organization and its actions cannot be based on trust.
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33.One guideline to evaluating the ethics of a particular action is to “let your conscience be your guide.”
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34.The roles that women play in some foreign countries may present some difficult ethical problems for firms doing business internationally.
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NAT: AACSB DiversityAICPA Critical Thinking
35.Bribery of foreign government officials is both an ethical and a legal issue.
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multiple choice questions
1.John is sales manager for Kleen ‘N Brite Products, Inc. Compared to John’s personal activities, his business activities most likely involve
a.more complex ethical issues.
b.simpler ethical issues.
c.the same ethical issues.
d.no ethical issues.
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NAT: AACSB ReflectiveAICPA Critical Thinking
2.Lia works for Media Marketing Company. Her job includes putting “spin” on the firm’s successes and failures. In this context, ethics consist of
a.“bad” versus “good” publicity.
b.questions of rightness and wrongness.
c.the firm’s quarterly revenue.
d.whatever is legal.
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NAT: AACSB ReflectiveAICPA Critical Thinking
3.In studying the legal environment of business, Professor Dooley’s students also review ethics in a business context. Ethics includes the study of what constitutes
a.fair or just behavior.
b.financially rewarding behavior.
c.legal behavior.
d.religious behavior.
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4.Superior Corporation engages in ethical behavior solely for the purpose of getting good publicity and thereby increasing profits. Superior is
a.acting unethically in its pursuit of publicity.
b.acting unethically in its pursuit of profits.
c.acting unethically in its setting of priorities.
d.not acting unethically.
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Fact Pattern 2-1 (Questions 5–6 apply)
Leo runs an asset recovery business. In one case, he recruits clients by misrepresenting the facts and pretending to be licensed to practice law in Mississippi. He files gratuitous, malicious pleadings, lies to the court, and otherwise abuses the judicial process. Later, he involves himself in other cases in which he uses similar tactics.
5.Refer to Fact Pattern 2-1. According to the description quoted by the court in Case 2.1, Baum v. Blue Moon Ventures LLC, Leo’s conduct is
a.“an example of guerilla warfare through litigation.”
b.“praiseworthy for its ingenuity in recovering hidden assets.”
c.“understandable in the pursuit of profit but not laudable.”
d.“unjustifiable but not seriously reprehensible.”
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NAT: AACSB CommunicationAICPA Decision Modeling
6.Refer to Fact Pattern 2-1. Under the decision of the court in Case 2.1, Baum v. Blue Moon Ventures LLC, Leo’s conduct most likely warrants
a.an admonishment but no other sanctions.
b.an injunction against certain court filings plus other sanctions.
c.no sanctions but no praise.
d.praise for its aggression in recovering the assets of “deadbeat” debtors.
answer:BPAGE:39TYPE:N
NAT: AACSB CommunicationAICPA Critical Thinking
7.Tina, the chief financial officer for USA Products Corporation, attempts to apply Christian precepts in making ethical decisions and in doing business. In applying duty-based ethical standards that are derived from a religious source, Tina would most likely consider the motive behind an act to be
a.irrelevant.
b.the least important consideration.
c.the most important consideration.
d.the only consideration.
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NAT: AACSB ReflectiveAICPA Critical Thinking
8.Dion, an accountant for Engineering Associates, Inc., attempts to apply the duty-based approach to ethical reasoning in conflicts that occur on the job. This approach is based on the idea that a person must
a.achieve the greatest good for the most people.
b.avoid unethical behavior regardless of the consequences.
c.conform to society’s ethical standards.
d.place his or her employer’s interest first.
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9.Del, vice-president of sales for EZ Products, Inc., adheres to religious ethical standards. Their application involves an element of
a.absolutism.
b.after-the-fact rationalization.
c.personal discretion.
d.utilitarianism.
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NAT: AACSB ReflectiveAICPA Critical Thinking
10.Rob, the owner of Super Stores, Inc., adheres to the “principle of rights” theory. Under this theory, a key factor in determining whether a business decision is ethical is how that decision affects
a.the right determination under a cost-benefit analysis.
b.the rights of others.
c.the “right” thing to do.
d.the right to make a profit.
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11.In making business decisions,Brian, personnel manager for Conservative Investments, Inc., applies his belief that all persons have fundamental rights. This is
a.a religious rule.
b.the categorical imperative.
c.the principle of rights.
d.utilitarianism.
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12.Energy Research Corporation asks its employees to consider ethical behavior from a “categorical imperative” perspective. This approach
a.categorizes certain actions as imperative.
b.considers the consequences to follow if everyone acted the same.
c.focuses on categories of rights and privileges.
d.imposes sanctions on those who behave unethically.
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13.In business deals, Elin, the chief executive officer of Frosted Donuts, Inc., follows duty-based ethical standards. These are most likely derived from
a.a corporate ethics code.
b.a cost-benefit analysis.
c.philosophical reasoning.
d.the law.
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NAT: AACSB ReflectiveAICPA Critical Thinking
14.In deciding questions of corporate social responsibility, Mega Deals, Inc., is concerned with
a.how the corporation can best fulfill its duty to society.
b.the effect on corporate profits of ignoring any duty to society.
c.whether the corporation owes a duty to society.
d.all of the choices.
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NAT: AACSB ReflectiveAICPA Critical Thinking
15.Teresa, in making marketing decisions for Uno Stuff, Inc., takes a utilitarian perspective.A characteristic statement of this philosophy is
a.“an action is morally correct when, among the people it affects, it produces the greatest amount of good for the greatest number.”
b.“for every action, there is an equal and opposite reaction.”
c.“life in a state of nature is nasty, brutish, and short.”
d.“the pursuit by individuals of their self-interest will result in a corresponding increase in societal welfare.”
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NAT: AACSB EthicsAICPA Critical Thinking
16.Callie, a lawyer on the staff of Droll International Ltd., applies the utilitarian theory of ethics in business contexts. Utilitarianism focuses on
a.moral values.
b.religious beliefs.
c.the consequences of an action.
d.the nature of an action.
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17.In making decisions for Sales Unlimited Inc., Tajik uses a cost-benefit analysis. This is a part of
a.duty-based ethics.
b.Kantian ethics.
c.the principle of rights.
d.utilitarianism.
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18.Lacey, a vice-president of Medico Pharmaceuticals, Inc., does not apply utilitarianism to business ethical issues.One problem with utilitarianism is that it
a.gives business profits priority over production costs.
b.ignores the practical costs of a given set of circumstances.
c.requires complex cost-benefit analyses of simple situations.
d.tends to justify human costs that many find unacceptable.
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19.Any decision by Reggie and the other managers of Standard Solutions Corporation may significantly affect the firm’s
a.operators only.
b.operators, owners, suppliers, the community, or society as a whole.
c.owners only.
d.suppliers, the community, or society as a whole only.
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NAT: AACSB ReflectiveAICPA Risk Analysis
20.Manufactured Metals, Inc., asks its employees, many of whom are members of the National Machinists Union, to apply the utilitarian theory of ethics.This theory does not require
a.a choice among alternatives that will produce maximum societal utility.
b.a determination of whom an action will affect.
c.an assessment of the effects of alternatives on those affected.
d.the acquiring of the means of production by workers.
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21.A common ethical dilemma faced by the management of Wheel Deals Corporation involves the effect that its decision will have on
a.one group as opposed to another.
b.the firm’s competitors.
c.the government.
d.all of the choices.
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22.General Auto, Inc., needs to cut costs by downsizing. In determining which employees to discharge, General Auto will most likely weigh
a.its ethical duty to long-term employees and the legality of discharging older workers only.
b.its ethical duty to long-term employees, its profit margin, and the legality of discharging older workers.
c.the legality of discharging older workers only.
d.no duty.
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23.Steele Tool Company’s decision makers view a particular risk in the use of Steele’s product as open and obvious. They believe that because the risk is obvious, consumers are already taking steps to avoid it and that adding a warning could result in lower sales that would necessitate layoffs of employees. Thus, in the managers’ view, the warning would not benefit consumers but could have a serious negative impact on Steele’s employees. Continuing to market the product without telling consumers of the risk could be justified from a perspective of
a.duty-based ethics.
b.Kantian ethics.
c.rights-based ethics.
d.utilitarian ethics.
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NAT: AACSB ReflectiveAICPA Risk Analysis
24.Quality Paper Corporation (QPC) makes and sells its products nationwide. To be considered socially responsible when making a business decision, QPC could take into account the needs of
a.its consumers, the community, and society only.
b.its employees and owners only.
c.its employees, owners, consumers, the community, and society.
d.no one.
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25.Eagle Production Corporation could demonstrate a commitment to ethical behavior by
a.complying with the law only.
b.implementing ethical programs only.
c.making a profit only.
d.complying with the law, establishing ethics codes, and making money.
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NAT: AACSB ReflectiveAICPA Critical Thinking
26.Equity Corporation provides other firms with funds to expand operations.Questions of what is ethical involve the extent to which Equity has
a.a legal duty beyond those duties mandated by ethics.
b.an ethical duty beyond those duties mandated by law.
c.any duty beyond those mandated by both ethics and the law.
d.any duty when it is uncertain whether a legal duty exists.
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27.Capital Acquisitions Corporation buys, reorganizes, and sells other companies.If Capital strictly complies with existing laws, the firm will
a.fulfill all business ethics obligations.
b.fulfill no business ethics obligations.
c.fulfill some business ethics obligations.
d.not need to fulfill any business ethics obligations.
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NAT: AACSB ReflectiveAICPA Critical Thinking
28.Import-Export Sales, Inc., like other businesses, has duties prescribed by
a.ethics and the law.
b.ethics only.
c.the law only.
d.the market only.
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NAT: AACSB ReflectiveAICPA Critical Thinking
29.Sven, the human resources director for Temp Labor Unlimited, Inc., attempts to comply with the law in dealing with applicants, employees, and clients. One of the challenges Sven faces is that the legality of an action is
a.always clear.
b.never clear.
c.not always clear.
d.usually clear.
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30.Some consumers misuse the products of Hardware Gear, Inc., and are injured, although the products come with detailed instructions and warnings against misuse. In terms of responsibility, Hardware may have
a.a legal duty only.
b.an ethical and a legal duty.
c.an ethical duty only.
d.neither an ethical nor a legal duty.
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NAT: AACSB ReflectiveAICPA Critical Thinking
31.Max lies to Nora, his spouse. This is
a.illegal and unethical.
b.illegal only.
c.neither illegal nor unethical only.
d.unethical only.
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32.Housemate, Inc., makes and sells a variety of household products. With a fair amount of certainty, Housemate’s decision makers can predict whether a given business action would be legal in
a.all situations.
b.many situations.
c.no situations.
d.practically no situations.
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NAT: AACSB ReflectiveAICPA Legal
33.Otto, the chief executive officer of Prismatic Diamond Corporation (PDC), wants to ensure that PDC’s activities are legal and ethical. The best course for Otto and PDC is to act in
a.good faith.
b.ignorance of the law.
c.regard for PDC’s shareholders only.
d.their own self interest.
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NAT: AACSB ReflectiveAICPA Decision Modeling
34.Fealty Financial Corporation asks its employees to judge their actions and get on the ethical business decision-making “bandwagon.” Guidelines for evaluating individual actions include all of the following except
a.an individual’s conscience.
b.business rules and procedures.
c.loopholes in the law or company policies.
d.promises to others.
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NAT: AACSB ReflectiveAICPA Critical Thinking
35.Make-It Construction Corporation makes a side payment to a government official in Nigeria to obtain a contract. In the United States, this is
a.illegal and unethical.
b.illegal only.
c.neither illegal nor unethical.