Test Bank For Business Ethics Case Studies and Selected Readings 7th Edition

Test Bank for Business Ethics Case Studies and Selected Readings, 7th Edition
Test Bank for Business Ethics Case Studies and

Selected Readings, 7th Edition
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UNIT SEVEN – ETHICS AND PRODUCTS
True/False Questions
F 1. All of the problems that resulted in Mattel’s toy recalls were the result of factory issues in
China.
T 2. Mattel had design issues with some of its toys.
T 3. Lead paint is legal for use in China.
T 4. Lead paint lasts longer than unleaded paint.
F 5. Mattel’s stock price did not drop because it acted quickly on its recall.
F 6. The suits against McDonald’s for plaintiffs’ obesity have been dismissed.
T 7. The sale of a product with known, but undisclosed dangers, is unethical.
F 8. Taking advantage of a party in a contract situation due to the party’s inexperience, and
not due to any lack of disclosure on your part, is ethical.
T 9. Long-term relationships create ethical and legal obligations between the parties through
conduct and accommodations.
T 10. The failure to correct a known defect in a product is both an ethical lapse and a basis for
a negligence claim.
F 11. Although you are not part of your company's engineering group, you have discovered a
major flaw in the company's new paper-thin solar calculator. The calculator adds when
the subtract button is pressed if there are more than three figures to the right of the
decimal point. Since it is not your area, you should do and say nothing.
F 12. With respect to #11, it is not necessary for the company to take any action to correct the
problem or refund money for those who already own the new calculator.
T 13. You are in marketing for one of the three U.S. auto manufacturers. You have just
received a notice from your seat belt buckle supplier that the buckles shipped to you and
used in the cars made between June 94 and September 94 are defective. The defect
means that the buckles will come undone if pressure is placed on the belts at any speed
over 10 miles per hour. You must encourage your firm to issue a recall.
T 14. Intentional breach of a contract carries a legal remedy, but it is also unethical.
T 15. The failure to disclose material information in negotiations is an ethical breach.
F 16. Taking your current employer’s supply chain management system to a prospective
employer is not a breach of trust.
T 17. Taking your current employer’s customer list to a prospective employer is a breach of
trust.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
T 18. The withholding of material information in a contract relationship is an ethical issue as
well as misrepresentation.
T 19. Telling a customer he needs repair work done on a vehicle when the vehicle is in fine
condition is unethical and misrepresentation.
T 20. Failure to disclose the dangers of a diet program is an ethical issue.
T 21. The failure to provide safe packaging is a product liability issue.
T 22. The failure to redesign a product with a safety flaw is a product liability issue.
T 23. Releasing a product with known safety problems for sale to the public is an ethical
breach.
T 24. Stem-cell research carries ethical questions for biotech firms.
T 25. Stem-cell research debates center on the question of when life begins.
F 26. Toyota was clear on the cause of accidents in its vehicles from the first complaint of
sudden acceleration.
F 27. The FDA declined to regulate General Mills and Cheerios ads.
T 28. Kellogg’s was forced to remove its claims that Rice Krispies increased children’s
attentiveness from its cereal boxes.
F 29. Countrywide went bankrupt.
T 30. Countrywide was acquired by Bank of America.
T 31. Fast-and-easy mortgage loans were largely undocumented loans.
F 32. The subprime market did not begin until 2007.
F 33. The default rate on subprime mortgage loans is no higher than the default rate for
conventional loans.
F 34. Reverse mortgages are a form of subprime lending.
T 35. Craigslist is not required by law to screen ads placed on its online service for illegal
conduct.
F 36. Tylenol did a rapid recall of its products when consumers reported black flecks were
present in the liquid product forms of the company’s analgesics.
T 37. Tylenol’s competitors were able to win customers when Tylenol’s quality control problem
was revealed.
T 38. The whistleblower in the Pfizer sales tactic case was fired.
T 39. Pfizer’s fine was high because of its previous violations.
Multiple Choice Questions
1. Ford and Firestone have been named as defendants in lawsuits brought by owners of Ford
Explorers who have been involved in rollover accidents in their vehicles. For Firestone to be held
solely liable for the accidents:
a. Ford must establish that there was no defect in design or manufacture or warning with its
Explorer.
b. Firestone cannot be held liable to the Explorer owners because they did not buy their
tires directly from Firestone.
c. Ford must show that Firestone was aware of defects in its tires.
d. None of the above
2. For Ford to be held solely liable for the accidents:
a. Firestone can show that the condition of its tires was changed by use and operation on
the Explorers.
b. Firestone must show that Ford was aware of a problem with the Explorer.
c. Ford cannot be held solely liable to the Explorer owners.
3. If Firestone establishes that Ford provided incorrect instructions for owners on inflation of tires
and that the tires were underinflated at the time of the accidents:
a. Ford is liable if it was aware of the underinflation.

b. Ford is not liable because of Firestone’s failure to anticipate the inflation issue.
c. Ford is liable.
4. What was Lee Iacocca’s objective in designing the Pinto?
a. A car less than 2,000 pounds that cost less than $2,000
b. A carefully designed competitor for small imports
c. Safety
5. What dictated the placement of the Pinto gas tank?
a. Safety
b. Style
c. Weight
d. Government regulations
6. In addition to the crush space issues, what other problems did the Pinto design have?
a. None, the only problem was the crush space

b. The price of the car was too high
c. Protruding flanges and bolt heads
7. What was the cost of partially or completely fixing the Pinto gas tank to better withstand rear-end
collision impact?
a. The costs of the changes ranged from $1.80 to $15.30
b. The costs were over 10% of the cost of the car
c. The costs were too great because the car had to be redesigned
8. What did the memo entitled, “Fatalities Associated with Crash Induced Fuel Leakage and Fires”
analyze?
a. Other auto manufacturers’ cars and their risks

b. The cost-benefit analysis of producing the Pinto as is or changing its design/components
c. The history of rear-end auto collisions in the U.S.
9. What value did Ford put on human life in its analysis of its Pinto issue?
a. $2 million
b. $1 million
c. $200,000
d. $100,000
10. What happened to Mrs. Gray when her Pinto was rear-ended by a Galaxie?
a. She managed to escape from the car

b. Nothing; the gas tank survived the impact
c. She was burned severely and died of congestive heart failure
11. Who is Richard Grimshaw?
a. Ford engineer who did the cost-benefit analysis on the Pinto

b. A teen who was severely burned when the Pinto he was riding in exploded into flames
following a rear-end collision
c. CEO of Ford Motor
d. Secretary of the Department of Transportation
12. What did the state of Indiana do with regard to Ford’s Pinto?
a. Banned the sale of the Pinto in the state

b. Indicted Ford for reckless homicide
c. Filed suit to recover damages for burn victims
d. Fined Ford $200,000 per accident
13. Which car that GM manufactured had issues similar to the Pinto?
a. Malibu
b. Corvette
c. Cadillac
d. Both a and b
14. How did Patricia Anderson’s car get rear-ended?
a. The car stalled on the freeway and she was trying to get off the freeway when she was
rear-ended
b. She was rear-ended by a car going 70 mph as she sat at a stop sign
c. She was not rear-ended; her car exploded at a stop sign
15. Who is Edward Ivey?
a. The drunk driver in the Malibu accident case

b. CEO of General Motors
c. Engineer who performed a cost-benefit analysis on the Malibu and its gas tank issues
16. What did the GM internal memo estimate the cost of the exploding gas tanks would be to GM?
a. $2.40 per car

b. The memo did not do that analysis because it did not put a value on human life
c. GM had learned from the Ford Pinto case and did not have such a memo
d. $200,000 per car
17. What memo did GM have that was different from the Ford Pinto situation?
a. There was no GM memo

b. A memo from a lawyer advising against releasing any internal company analysis of the
Malibu design
c. A memo that fired engineers who worked on the Malibu
18. What was the original verdict against GM in the LA Malibu case?
a. $1.2 billion
b. $2 billion
c. $4.9 billion
d. $5.0 billion
19. What temperature was Jack-in-the-Box cooking its burgers at when the E-Coli illnesses and
deaths occurred?
a. 140 degrees
b. 150 degrees
c. 155 degrees
d. 160 degrees
e. 165 degrees
20. What was the required legal temperature for cooking burgers at the time of the E-Coli illnesses
and deaths?
a. 140 degrees
b. 150 degrees
c. 155 degrees
d. 160 degrees
e. 165 degrees
21. What temperature were most fast-food chains using at the time of the Jack-in-the-Box E-Coli
illnesses and deaths?
a. 140 degrees
b. 150 degrees
c. 155 degrees
d. 160 degrees
e. 165 degrees
22. Why was Jack-in-the-Box cooking at a different temperature from other fast food chains?
a. Jack-in-the-Box had higher safety standards

b. Cost
c. Jack-in-the-Box lost the memo
d. Both a and b
e. Both b and c
f. a, b, and c
23. What was the impact of the E-Coli poisonings on Jack-in-the-Box sales?
a. Sales remained the same, unaffected

b. Sales dropped 10%
c. Sales dropped 20%
d. Jack-in-the-Box was closed so there were no sales
24. How many Jack-in-the-Box customers were affected by the E-Coli poisonings?
a. 100
b. 150
c. 300
d. 600
25. How much did Jack-in-the-Box have to have set aside for payments in the suits filed against it?
a. $20 million
b. $50 million
c. $100 million
d. $200 million
26. What changes did Jack-in-the-Box make after the E-Coli poisonings?
a. Changed meat suppliers

b. Increased cooking temperature
c. Added extra meat inspections
d. a and b only
e. a, b, and c
27. What error did Intel discover in its Pentium chip in July 1994?
a. That the chip was contaminated

b. That there was a floating point error that caused errors in division calculations
c. That the chip could cause computer viruses
28. How much money had Intel spent developing the Pentium chip?
a. $150 million
b. $500 million
c. $600 million
d. $1 billion
29. What did Intel discover when it ran tests on the Pentium chip?
a. That it would make an error once every 27,000 years

b. That the chance of an error was one in 9 billion
c. That the floating point error problem was not one that required attention
d. a and b only
e. a, b and c
30. Who made the Intel error problem public?
a. Intel
b. A mathematician professor
c. IBM
31. What was Intel’s original proposal on the flawed chips?
a. To replace them without questions

b. To replace them only for computer users who had to do calculations
c. To replace them only for a fee
32. What company changed Intel’s reaction to the flawed chips?
a. Dell
b. Microsoft
c. IBM
d. Apple
33. What was the total cost if Intel replaced all chips?
a. $100 million
b. $200 million
c. $260 million
d. $360 million
34. The sale of a product with a known defect or with knowledge of its potentially harmful impact on
users:
a. Is illegal.
b. Is unethical.
c. Exposes the manufacturer to strict and negligent product liability.
d. Both b and c
35. Intel’s biggest obstacle in its Pentium chip flaw was:
a. The cost of replacement.

b. Admitting that there was a problem and acknowledging it to the public.
c. The hit to earnings if the sales were not made.
d. Both a and c
e. None of the above
36. Jack-in-the-Box, Inc. cooked its hamburgers according to the temperature required by law. Other
chains cooked their hamburgers at a higher temperature and for longer. Jack-in-the-Box:
a. Made a decision that resulted in liability and the moral responsibility for deaths and
injuries of its customers.
b. Was in compliance with the law and ethical in its conduct.
c. Has no liability because it was in compliance with the law.
d. Both b and c
e. None of the above
37. What was Coke’s strategy for expanding fountain sales?
a. Sign up new fast-food franchises

b. Move Frozen Coke into fast-food franchises
c. Eliminate Frozen Coke from convenience stores
38. Why did Burger King want a test market?
a. The product was new

b. Its marketing campaigns recently had been disasters
c. It did not trust Coke
d. Both a and b
e. a, b and c
39. What area was picked for the test market?
a. Richmond, Virginia
b. Tallahassee, Florida
c. Atlanta, Georgia
d. Orlando, Florida
40. How did Coke get better numbers in the test market?
a. It seasonalized the numbers

b. It altered the numbers
c. A marketing consultant used the Boys and Girls Clubs to get customers into Burger King
to buy Frozen Coke value meals
d. Its own employees bought Frozen Coke value meals
41. Who is Matthew Whitley?
a. The account manager for Burger King

b. The Coke retail vice president
c. A Coke employee who questioned the invoices from the marketing consultant
d. CEO of Coke
42. How did Coke managers react when an employee brought the Boys and Girls Club issue to their
attention?
a. It went to Burger King and apologized

b. It fired the employee
c. It asked the employee to conduct a complete investigation
43. How much did the Boys and Girls Club plan increase sales in Richmond, Virginia?
a. 2%
b. 6%
c. 10%
d. 15%
44. Which of the following resulted from the Burger King Frozen Coke issues?
a. Coke had an earnings restatement

b. The FBI investigated Coke
c. The SEC investigated Coke
d. Both b and c
e. All of the above
45. What did Coke do to the employees involved in the Burger King/Frozen Coke activities?
a. They were terminated or resigned

b. They are still with the company, but were demoted
c. They are still with the company but lost their bonuses
46. How much did Coke pay to the employee who filed suit alleging wrongful termination?
a. $540,000: $100,000 in cash, $140,000 in benefits including health insurance, and

$300,000 in lawyer’s fees
b. $9,000,000 plus $300,000 lawyer’s fees
c. $37,000,000 plus lawyer’s fees
47. Coca-Cola’s test marketing of Frozen Coke:
a. Took unfair advantage of Burger King.

b. Involved stating things known not to be true.
c. Gave a false impression.
d. All of the above
48. Which of the following is NOT an example of an express warranty?
a. “This toothpaste makes teeth the whitest around.”

b. “This water heater holds 50 gallons.”
c. “Preshrunk jeans”
d. “This jacket is lined.”
49. Sal was at home going through his normal workout when he bent his barbell bar. Sal is a
professional bodybuilder. Sal went to his local sporting-goods store and was approached by a
clerk wishing to assist him. Sal told the clerk about his problem and the clerk asked Sal to wait
while an appropriate bar was located. The clerk presented Sal with a bar that the clerk said "is
just what you need for your type of weight requirements." Sal paid for the bar and was returning
home when he stopped at a health food restaurant. The drink that he ordered had an unusual
taste, but the food establishment refused a refund. Sal became ill from the drink, which, as it
turned out, had a toxic substance in it. Sal had to be hospitalized. When Sal was able to work out
again, he attached the weights to the new bar and lifted the bar under his chin. The bar snapped
in the middle and severely cut Sal. Sal is angry about the drink and the barbell.
With regard to the barbell bar:
a. Sal is not entitled to any recovery for his injury or the broken second barbell because he
did not buy all of the components, including the weights, from the same store.
b. Sal is not entitled to any recovery for his injury or the broken second barbell because he
is knowledgeable himself in weightlifting and should have known which barbell to use.
c. Sal is entitled to recovery because there has been a breach of an express warranty.
d. Sal is entitled to recovery because of the warranty of fitness for a particular purpose.
50. Which of the following would not be a basis for a negligence product liability suit?
a. A recall by Toyota of certain of its cars for problems with the floor mat interfering with the
driver’s ability to apply the brakes quickly
b. A highly explosive gas tank installed in a car with the manufacturer’s knowledge of its
dangers
c. The continued sale of sunglasses to baseball teams knowing that the sunglasses were
not shatterproof and had caused players eye injuries
d. All of these would be a basis for a negligence product liability suit
51. At the heart of the Marsh McLennan mess was:
a. Price-fixing.
b. Insider trading.
c. Conflicts of interest.
d. Both a and c
52. “Conscious parallelism” is:
a. The prices of competitors running in tandem with changes.

b. Illegal per se.
c. An issue in the vertical distribution of goods.
Short Answer/Essay Questions
1. Mattel had cost savings in outsourcing to China. What did it miss in its analysis of the
international outsourcing?
SUGGESTED ANSWER:
Students should discuss that there are always risks associated with lower costs. Here there was
the inability to monitor the factories and the lack of knowledge of Chinese vs. U.S. standards on
paint and its use. The students can apply any of the ethical models to show that the 360-degree
perspective on the analysis of the outsourcing was missing. They have learned many of the
reputational issues that arise from decisions such as Mattel’s.
2. Discuss why Toro implemented its program on working with customers injured by Toro products.
SUGGESTED ANSWER:
Students should discuss the strict liability position Toro has and that litigation may not yield
favorable results for either side. The one-on-one approach allows the company to settle matters
quickly before adversarial posturing sets in. Customers can be compensated, even in cases
where they have misused the product. There is goodwill that comes from the program as well as
reduced costs for Toro.
3. Stanford University medical researchers conducted a study on the correlation between the use of
fertility drugs and ovarian cancer. Their study, published in the American Journal of
Epidemiology, concludes that the use of the fertility drugs, Pergonal and Serophene, may
increase the risk of ovarian cancer by three times. The lead author of the studies, Professor Alice
Whittemore, stated, "Our finding in regard to fertility drugs is by no means certain. It is based on
very small numbers and is really very tenuous."
FDA Commissioner David Kessler would like the infertility drug manufacturers to disclose the
study findings and offer a warning on the drug packages. He notes, "Even though the
epidemiology study is still preliminary, women have a right to know what is known. We're not
looking to make more of this than there is."
If you were a manufacturer of one of the drugs, would you voluntarily disclose the study
information?
SUGGESTED ANSWER:
Given the history of asbestos, the breast implants, and other products covered in the text, it is not
difficult to spot a similar pattern here. Although the law may not require disclosure, the ethical
tests of balance and "how would you want to be treated?" point manufacturers in the direction of
disclosure. Full market information requires that buyers make choices based on full disclosure.
Without the study information, making those decisions becomes one-sided. The drug firm has
more information that is not available to their purchasers. Further, the history of the cases
mentioned demonstrates that firms are always better off financially if they make the disclosure
and allow the market to function than if they withhold the information and must later defend
product liability suits. The disclosure should be made not only from an ethical perspective but
also from a financial and litigation perspective.
4. Refer back to Unit Four and discuss why Tylenol (McNeil) behaved so differently in the quality
control situation as opposed to the poisoning situation.
SUGGESTED ANSWER:
Students should focus on the culture. In the quality control issue, those in the company were
trying to avoid a formal recall and were working to preserve the company’s high standing without
any public disclosure. They believed that they could manage the situation. The leaders may not
have tolerated dissent and become isolated. The employees may have been driven by the
numbers and poor decision making resulted from not looking at the issue from a 360-degree
perspective.
Test Bank for Business Ethics Case Studies and Selected Readings, 7th Edition
5. Compare and contrast the cases of Peanut Corporation of America and the Tylenol Quality
Control problem.
SUGGESTED ANSWER:
Similarities:
In both they were trying to manage a problem in a way that minimized cost and damage to
reputation.
Neither company acted decisively on the side of safety.
Both companies suffered tremendous reputation loss.
Both companies were investigated – Tylenol by Congress.
Both continued to sell and/or produce the product after notices of issues had been received.
Differences:
Peanut Corporation went bankrupt and Tylenol will survive.

Peanut Corp had one decision maker and Tylenol had a team of executives.
Peanut Corp had one product and stood to lose more when it lost its reputation.
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T 2. Mattel had design issues with some of its toys.

T 3. Lead paint is legal for use in China.

T 4. Lead paint lasts longer than unleaded paint.

T 7. The sale of a product with known, but undisclosed dangers, is unethical.

T 15. The failure to disclose material information in negotiations is an ethical breach.

T 20. Failure to disclose the dangers of a diet program is an ethical issue.

T 21. The failure to provide safe packaging is a product liability issue.

T 24. Stem-cell research carries ethical questions for biotech firms.

F 29. Countrywide went bankrupt.

T 30. Countrywide was acquired by Bank of America.

T 31. Fast-and-easy mortgage loans were largely undocumented loans.

F 32. The subprime market did not begin until 2007.

F 34. Reverse mortgages are a form of subprime lending.

T 39. Pfizer’s fine was high because of its previous violations.

2. For Ford to be held solely liable for the accidents:

a. Ford is liable if it was aware of the underinflation.

4. What was Lee Iacocca’s objective in designing the Pinto?

5. What dictated the placement of the Pinto gas tank?

a. None, the only problem was the crush space

a. Other auto manufacturers’ cars and their risks

a. She managed to escape from the car

11. Who is Richard Grimshaw?

a. Ford engineer who did the cost-benefit analysis on the Pinto

a. Banned the sale of the Pinto in the state

14. How did Patricia Anderson’s car get rear-ended?

15. Who is Edward Ivey?

a. The drunk driver in the Malibu accident case

a. $2.40 per car

a. There was no GM memo

a. Jack-in-the-Box had higher safety standards

a. Sales remained the same, unaffected

a. Changed meat suppliers

a. That the chip was contaminated

a. That it would make an error once every 27,000 years

30. Who made the Intel error problem public?

31. What was Intel’s original proposal on the flawed chips?

a. To replace them without questions

32. What company changed Intel’s reaction to the flawed chips?

35. Intel’s biggest obstacle in its Pentium chip flaw was:

a. The cost of replacement.

37. What was Coke’s strategy for expanding fountain sales?

a. Sign up new fast-food franchises

38. Why did Burger King want a test market?

a. The product was new

39. What area was picked for the test market?

a. It seasonalized the numbers

41. Who is Matthew Whitley?

a. The account manager for Burger King

a. It went to Burger King and apologized

a. Coke had an earnings restatement

a. They were terminated or resigned

a. $540,000: $100,000 in cash, $140,000 in benefits including health insurance, and

47. Coca-Cola’s test marketing of Frozen Coke:

a. Took unfair advantage of Burger King.

48. Which of the following is NOT an example of an express warranty?

a. “This toothpaste makes teeth the whitest around.”

With regard to the barbell bar:

51. At the heart of the Marsh McLennan mess was:

52. “Conscious parallelism” is: