BUSI 100 Midterm 1

Mark Twain said a "classic" is a book that people praise and don't read. Would Henry David Thoreau agree?

Yes

Which phrase is from Thoreau?

"The works of the great poets have never yet been read by mankind, for only great poets can read them."

What was Thoreau referencing when he said it leads to "a dulness of sight, a stagnation of the vital circulations, and a general deliquium and sloughing off of all the intellectual faculties"?

Reading (easy reading)

What activity does Thoreau say we should do by standing on tiptoe and devoting our most alert and wakeful hours to it?

Reading

T/F: Thoreau notes that most of his townsmen have learned to read not only to keep accounts and not be cheated in trade, but also as a noble intellectual exercise.

False

T/F: In Walden, Thoreau argues that the eloquence of the orator's spoken language is the most powerful form of communication.

False

According to Thoreau, what is the choicest of relics?

Books (the written word)

What does Thoreau argue we have become as a society?

Underbred, low-lived, and illiterate

In Plato's The Republic, who or what is the "true creator" of a State?

Necessity

In Plato's The Republic, individuals exchange with one another with the intention that the exchange will ___

Be for their good (mutual benefit) - "None of the above" on the poll

T/F: According to Plato's The Republic, creativity is the mother of invention, capable of giving rise to a new state.

False

T/F: Plato's belief that "one man is naturally fitted for one task, and another for another" aptly describes the economic concept of specialization of labor.

True

Which statement is Plato most likely to say is necessary to a well-functioning society?

Tasks are divided and each person focuses on a specific role

T/F: In Plato's The Republic, injustice arises naturally from political disagreement rather than from the interpersonal dealings of citizens.

False

Plato felt the fundamental key in the development of an economy was:

More things are produced, and better and more easily, when one man performs one task according to nature, at the right moment, and at leisure from other occupations

Which author: specialization leads to needing more things, and this progression continues until before long we are at war

Plato

Which author: to form a functioning society there is a list of trade-offs

Plato

Which course reading best supports Gandhi's quote "Earth provides enough to satisfy every man's needs, but not every man's greed"?

Plato

T/F: An example of Adam Smith's "invisible hand" is a statesman, council, or senate who directs private citizens in what manner they ought to employ their capital.

False

T/F: In Wealth of Nations, Smith argues that given equal profits between domestic and foreign trade, a merchant is likely to put his greatest support into developing the foreign market.

False

Reasonable interpretation of Smith's "What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom"

If the pursuit of self-interest works at the individual level, it will also work at the national level

T/F: Adam Smith argues that the most efficient economies are those where the government intervenes to direct how people employ their capital.

False

Who said: "By directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this led by an invisible hand to promote an end which was no part of his intention"?

Adam Smith

Why did Adam Smith believe tariffs and import restrictions might harm the domestic economy?

They cause capital to be inefficiently employed

T/F: Adam Smith would be unlikely to agree with Friedman's quote that people operating separately through market transactions can achieve greater efficiency and output than a single central planner.

False

Which author: good trade benefits both people in different ways

Adam Smith

Friedman's video illustrating Adam Smith's free market principles focused on the production of which item?

A pencil

T/F: In 1970, Andrew Carnegie wrote an influential NYT article arguing "there is one and only one social responsibility of business - to increase its profits without deception or fraud."

False (it was Milton Friedman)

The key argument in Friedman's essay is that the manager is the ___ of the individuals who own the corporation

Agent

The insider ownership percentage for most large U.S. firms is in what range?

0% to 10% (less than 10%)

Milton Friedman believed managers of a publicly-owned corporation should invest the corporation's resources how?

Only for the benefit of the corporation's stockholders

Which statement would Milton Friedman be most likely to disagree with?

Big corporations are responsible for the large wealth disparity, and managers should use excess profits to mediate it

Which statements would Milton Friedman agree with?

Imposing social responsibilities harms the foundations of a free society / Tax proceeds used for social improvements differ in nature from company proceeds used for the same improvements / An executive decreasing prices to help with inflation is spending someone else's money

An executive diverting stockholders' money to a social cause reflects which American Revolution battle cry, according to Friedman?

Taxation without representation

When would Friedman most likely tolerate a manager making a charitable contribution with corporate money?

When the intent is to improve the corporation's image so more people buy its products and services

T/F: Friedman believed it is appropriate for a manager of a publicly held corporation to reduce employee wages to invest in an activity of general social interest.

False

Because the doctrine of social responsibility lets political, not market, mechanisms allocate scarce resources, Friedman argues accepting it means accepting ___

Socialism

Which author: business does not have any social responsibility to the society around it (beyond increasing profits)

Milton Friedman

Martin Shkreli's explanation for raising the price of Daraprim most closely resembles the arguments of which author?

Milton Friedman

Carnegie argues the law of competition has resulted in several outcomes. Which does he NOT include?

The living conditions of the apprentice and the master are made more equal

Which outcomes of competition DOES Carnegie include?

The laborer has more comforts than the landlord had a few generations ago / The landlord has books and pictures rarer than a King could previously obtain / The poor enjoy what the rich could not before afford

Carnegie describes the historical mode of manufacture as producing:

Crude articles at high prices

Which benefits of open competition does Carnegie note?

Good quality commodities at reasonable prices / The poor enjoy what the rich could not afford / What were luxuries have become necessaries of life

Which of these was NOT one of Carnegie's benefits of competition?

It promotes the concentration of business in the hands of a few

What are Carnegie's drawbacks of open competition?

Employers and workers drift apart / Rigid castes form / Mutual ignorance breeds mutual distrust / Society loses homogeneity / It can be hard on the individual

T/F: Carnegie believes that if society reverted to the "good old times," conditions would improve for the servant but worsen for the master.

False

T/F: Carnegie argues that the law of equity and inclusion is what we owe our wonderful material development to.

False (it is the law of competition)

T/F: Carnegie believed a person who earns great wealth should help society by leaving that wealth to the community or family when he or she dies.

False

Which author: extremely wealthy men have a responsibility to spend their money to benefit the greater good

Andrew Carnegie

Rand says "Money will not serve the mind that cannot match it." Which other author speaks about who is best fit to spend money?

Andrew Carnegie

According to John Burr Williams, what do all prices ultimately depend on?

Someone's estimate of future income

T/F: John Burr Williams would agree that company dividends, not earnings, are the primary consideration in determining investment value.

True

T/F: John Burr Williams defines the investment value of a stock as the present worth of the company's future revenues.

False

"So long as men live together on earth and need means to deal with one another - their only substitute, if they abandoned money, is ___"

The muzzle of a gun

Why does Rand say "to make money" is the proudest distinction of Americans?

Americans were the first to understand that wealth has to be created (they created the phrase "to make money")

How does the Ayn Rand reading resemble Alice in Wonderland meeting the Cheshire Cat?

Money gives you the ability to satisfy your desires, but it won't give you the desires

How does the Ayn Rand reading relate to Plato and Smith?

Money permits only deals to mutual benefit by the unforced judgment of the traders

T/F: According to Ayn Rand, money is the foundation of an immoral society.

False

T/F: According to Ayn Rand, when men live by trade with force as the final judge, the best product or performance will win.

False

T/F: According to Ayn Rand, it is a sign that society is doomed when trading is done by consent.

False

T/F: Ayn Rand believed the problem with society is the love of money, not money itself.

False

T/F: Ayn Rand thought society was doomed when money flows to those who deal not in goods but in favors.

True

According to Rand, what is wealth the product of?

Man's capacity to think

In a free society, which statement is Ayn Rand most likely to agree with?

Money is a tool of exchange that permits men to trade with one another

Which author: money is not evil but good, it only has power through voluntary trade, and without it people would turn to force

Ayn Rand

Pacioli notes that merchants must quit their ___ because they who lie on feathers or under covers will never amount to anything

Laziness

Pacioli argues the purpose of every merchant is to make a lawful and reasonable ___ so as to keep up his business

Profit

Pacioli says without arranging transactions systematically, merchants would have no ___ and their minds would always be troubled

Rest

Pacioli says the third and last thing necessary is to arrange transactions so one may understand each of them at a ___

Glance

T/F: Pacioli would agree that every merchant's main purpose is to arrange all transactions so each can be understood at a glance.

False (the main purpose is profit)

What are Pacioli's three things needed by anyone who wishes to carry on business carefully?

Cash / Being a good bookkeeper / Arranging all transactions systematically

What does Pacioli indicate is the most important factor in carrying on business?

Cash

Pacioli's inventory of "whatever one has in this world" would most likely appear in which part of the financial statements?

Assets

Which reading compares the merchant to a rooster that keeps night vigils and says the merchant's head has a hundred eyes?

Pacioli

Which author: write down transactions systematically and be meticulous about your business, but don't forget God and your neighbors

Pacioli

Defoe admonishes us to never sit down satisfied with an ___ in the cash

Error

Defoe argues it cannot be ___ to any tradesperson to let their books go unsettled

Satisfactory

Defoe says some merchants neglect their books because they have no courage to balance them, because of the ___ prospect of them

Afflicting

Best interpretation of Defoe's statement that tradesmen often suffer as much from neglecting bookkeeping as would pay for a bookkeeper

Accountants likely provide value in excess of their salaries, particularly for large companies

Which statement is Defoe least likely to agree with?

At the end of each month, a tradesperson should make their initial record of every transaction from that month

Which ideas did Defoe find useful in conducting business?

Everything done in the business should be set down in a book / Every transaction should be recorded every time

What did Daniel Defoe argue?

Keep accounts of stock, profit, and loss at least once a year / It's the only way to know if you're going forward or backward / Exact bookkeeping is essential to prosperity / Never accept an error - find the mistake

Defoe tells a story about a tradesman who could neither read nor write. What lesson does he intend?

Accounting must be systematic

T/F: Defoe believes there is a connection between the exactness of a tradesperson's bookkeeping and their prosperity.

True

T/F: Du Bois writes that Emancipation helped resolve the debt problem that plagued the Black Belt throughout the 19th century.

False

According to Du Bois, which statement about debt in the Black Belt is false?

Debt was mostly in the form of commercial credit

Du Bois writes "The keynote of the Black Belt is debt." What does he describe this debt to be?

The continued inability of the population to have their income cover their expenses

Plausible explanation for Du Bois's observation that Dougherty County farm values fell from $3 million (1860) to $2 million (1870)

Emancipation decreased the present value of the farms' cash flows because the cost of labor increased

Which author: "The problem of the 20th century is the problem of the color line"

W.E.B. Du Bois

Which author: Black people produce so much wealth yet have none, and the end of slavery left much of the South poor

W.E.B. Du Bois

Who wrote: "Education is not simply doing the things we like… but rather the unpleasant task, the hard lesson, and the bitter experience"?

W.E.B. Du Bois

Which purpose does John Stuart Mill NOT cite as something gross profits from capital must cover?

Provision for the necessaries of life

What three things does Mill say gross profits from capital must cover?

Abstinence (interest) / Risk (insurance) / Exertion or management (wages of superintendence)

T/F: Mill asserts the rate of profit greatly exceeds the rate of interest because it also compensates for the risk and exertion of the capitalist.

True

What does Francis Bacon say about the pursuit of riches through usury?

It provides the most certain means of gain

T/F: Francis Bacon advocates for a total condemnation and elimination of usury.

False

Which reason does Bacon give for why usury should not be completely abolished?

Borrowing without interest would lead to numerous economic inconveniences

Usury

The practice of lending money at interest (today: at unreasonably high rates)

Would Bacon or Mill expect lenders and investors to act as "benefactors" who expect nothing in return?

No - lenders and investors must be compensated for the risk of losing their capital

T/F: HBR research showed solo founders can perform as well as co-founded ventures while operating without the help of any other individuals.

False (they rely on co-creators)