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THE UNIVERSITY OF BRITISH COLUMBIASauder School of BusinessCOMM 394 Final ExamGovernment and BusinessKEITHHEADPRACTICE QUESTIONS for FINAL EXAMInstructions: Answer all questions for a total of 100 marks. Please read the detailed instructions at the beginning of each section. Write the text of your a...

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THE UNIVERSITY OF BRITISH COLUMBIA Sauder School of Business

COMM 394 Final Exam Government and Business K EITH H EAD PRACTICE QUESTIONS for FINAL EXAM

Instructions: • Answer all questions for a total of 100 marks. Please read the detailed instructions at the beginning of each section. • Write the text of your answers in the lines provided. Use the additional space below the lines for figures. • Nothing written on the back of pages will be counted for or against your mark. You may use that space for outlining answers or trial versions of drawings. No exceptions. • Print your name and student number in the space provided on the first page, and write your name in the space provided on all following pages. • No student may receive assistance from any other student. • The penalty for being caught copying answers from another student will be a zero on the exam. The program director will also be advised. • The exam is intended to be self-explanatory and my answer to most questions will be “The information provided in the exam is sufficient to answer the question.” • Do not use any materials other than those listed below. Duration: 120 minutes Aids permitted: none Last Name: Student Number:

First Name(s): Section:

Name: Part I: True/False Quiz

COMM 394 Final Exam Page 2 of 9 (50 marks)

Evaluate all 50 statements and circle the T if the statement is true or circle the F if the statement is false. Each correct selection receives 1 points. 1. The following statements refer to the six debates considered in November 2017 in C394. 1.1 The Against side argued that Site C is a terrible location for nuclear waste disposal because of the potential leakage of radioactive material into rivers where salmon spawn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 1.1

1.2 The Against privatization side argued that ICBC provides some services that private companies would not find profitable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 1.2

1.3 The For Vegetarianism side argued that switching to a vegetarian diet would lower green house gas emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 1.3

1.4 The Against Densification side argued Vancouver is already the densest city in North America, with most single-family dwellings already replaced with condos. . . . . . . . . . T

F 1.4

1.5 One of the key benefits of the Trans-Pacific Partnership will be that Canadian beef producers will gain preferential access to the fast-growing Chinese market for beef. . T

F 1.5

1.6 The For sides of the Guaranteed Business Income debate argued that the evidence of history shows that Artificial Intelligence (AI) actually creates more jobs than it destroys. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 1.6

2. Which of the following statements is true? 2.1 First Nations are the only Aboriginal Peoples in Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 2.1

2.2 Aboriginal Peoples includes First Nations and Inuit, but not Metis. . . . . . . . . . . . . . . . . . T

F 2.2

2.3 Legal meaning of “the Crown” is the federal government. . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 2.3

2.4 First Nations are a large fraction of the labour force. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 2.4

2.5 First Nations are significant landlords in Canadian cities. . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 2.5

3. Which of the following statements is true? 3.1 As long as the Crown has a “public purpose” it can infringe on Aboriginal title. . . . . T

F 3.1

3.2 Only the British government has obligations to the First Nations because it was the country that signed the original treaties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 3.2

3.3 The Crown has a duty to consult and accommodate on the use of land subject to Aboriginal Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 3.3

3.4 Aboriginal title applies only to land in Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 3.4

3.5 Only proven rights create consultation duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 3.5

(continued)

COMM 394 Final Exam Page 3 of 9

Name:

4. In a democracy with majority rule and more than two choices, and the preference order of council member is as shown in the table, which of the following statements are true/false? preference order 1st 2nd 3rd

Council member: John Anne Peter Library School Road Road Library School School Road Library

4.1 If the 3 proposals are put to a simultaneous vote, the result would be a tie . . . . . . . . . . T

F 4.1

4.2 Under sequential voting Peter would want the first vote to be: Library vs School . . . . T

F 4.2

4.3 Under sequential voting if John chooses the policy options for the first vote, the second vote will be: Library vs School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 4.3

4.4 Under sequential voting if Anne chooses the policy options for the first vote, the second vote will be: School vs Road . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 4.4

5. Which of the following is true/false? 5.1 According to Kenneth Arrow corporate social responsibility can serve the purpose of correcting market failures such as externalities and asymmetric information . . . . . . . . T

F 5.1

5.2 According to the Stakeholder theory managers only have obligations to the community T

F 5.2

5.3 A public good is a type of good where government’s regulation reduces externalities T

F 5.3

5.4 A utilitarian may consider a “potential” Pareto improvement ethical, even if improving the welfare of many requires worsening off someone . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 5.4

5.5 In the median voter theory there is an equilibrium in which both candidates select a platform equally distanced from the preferred by the median voter, but not too far from it . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 5.5

5.6 A Pareto inefficient situation is one in which in order to make anyone better off we must make someone worse off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T

F 5.6

Number of Statements: 26. Number of True Statements: 8.

(continued)

Name: Part II: Short Written Answers

COMM 394 Final Exam Page 4 of 9 (50 marks)

This section contains statements in quotes that you must critically evaluate. Explain in detail why the statement is true or false or some mixture of true and false statements. Make sure that you address all relevant issues, and identify their relative importance. Factual statements or the context for the statement that you should assume to be correct are placed at the beginning of some questions in italics. Answer all five questions. Confining your final text to the lines provided. The remaining area on each page may be used for figures which will be taken into account in the mark—if properly labelled and correctly referred to in the text. You can use the back of the page for notes or outlining your answer. Such notes or outlines will NOT be considered in the marking. Each question is worth 10 points. 6. “The social responsibility of corporations is to serve the community more than to serve the shareholders”. 6. Response False No, justified by Quote from Friedman “There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”. Pursuing social responsibilities other than profit maximization is a form of taxation without representation. Although in the stakeholder theory of Freeman (1984) managers have obligations to several groups in addition to shareholders (e.g. suppliers, customers, employees, community members, even social activists, this does not necessarily imply that the obligation is higher with the community than with the shareholders. The main departure from Friedman’s point of view is indicating that corporations have more duties than only to increase profits for shareholders. But, it does not mean that serving the community has to be more importantnt than serving shareholders. In addition, Arrow justifies corporate social responsibility because two types of market failures in which profit maximization fails to yield efficient results. 1) Negative externalities: pollution cause by the firm; 2) Asymmetric (imperfect) information: the firm knows more than the customer about the quality of the product. Marking: 1 mark for answering that the statement is false; 5 marks for discussing Friedman’s arguments that the only duty of managers is to increase profits; 4 marks for discussing the stakeholder theory (not need to mention that it is from Freeman) and the fact that corporations have obligations to several groups including shareholders (but not necessarily more obligations for the community than shareholders). Give up to 2 bonus marks (keeping the maximum up to 10 marks) if the arguments for corporate social responsibility by Arrow are discussed. Adjust up or down 1 or 2 marks depending on whether you think they understand the concepts. It is not 100% needed that the student mention the names of all the theories, but it should be extremely clear to diferentiate the type of arguments.

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COMM 394 Final Exam Page 5 of 9

7. Trade deficits: The Secretary of Commerce for Donald Trump, Wilbur Ross was quoted in a Dec. 1 WSJ article saying, “It’s Econ 101 that GDP equals the sum of domestic economic activity plus ‘net exports,’ i.e., exports minus imports. Therefore, when we run massive and chronic trade deficits, it weakens our economy.” Based on the Krugman quote we saw in class, which parts of Ross’ statement would trade economists agree and disagree with, and why? 7. GDP is C + I + G + (X − M ) so if Ross interprets “domestic economic activity” as C + I + G then his first statement is correct. (Technically C + I + G is domestic economic expenditure, not activity.) You should recall from Econ 1 that this is just an accounting rule. It does not tell us what is good or bad for economic welfare. Krugman emphasized that “trade deficits” are not necessarily bad things since the purpose of trade is to import. Exports are just one of the ways we pay for imports. Our material standard of living is improved when we can buy more goods and services, including imported ones. Exporting more than one imports would mean accumulating foreign assets, which is not necessarily desirable. Whether “massive and chronic deficits” weaken the US economy is not a subject for this class but we can’t answer it just from looking at the equation for GDP.

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COMM 394 Final Exam Page 6 of 9

8. Prison Guard’s dilemma. Two army privates, Andy and Bob, are assigned to guard a prisoner of war (POW). Their sergeant orders Andy to “beat the prisoner” (without any justification). Private Andy is not sure what his moral obligation is in this situation. He reasons that if he declines to beat the prisoner, he will incur a severe punishment for disobedience. Furthermore, the sergeant will then just order Bob to do the beating. Andy knows that Bob is a brutal person without empathy who will inflict even worse pain on the prisoner during the beating than Andy would inflict (note that Bob does not actually enjoy the beating; he is indifferent as is the sergeant). “Utilitarianism would say that Private Andy should beat the prisoner which Kant would say proves Utilitarianism is wrong.” 8. A[4] Act utilitarian analysis suggests Andy should beat the prisoner. This will benefit Andy (because he won’t be punished for disobedience) and the prisoner (because he won’t get the worse beating from Bob) and will be neutral for Bob and the sergeant (we were told to assume they are indifferent which means their utility will not rise or fall). B [3] Rule utilitarianism reaches a different conclusion. If everyone knew that the rule was “Do not mistreat prisoners”, then the sergeant would not even ask for the beating and Andy would not have to be disobedient. Andy would know with this rule universally applied there would be no beating. He would be happier, the prisoner would be much happier, and Bob would (again) be neutral. C [2] Kant’s practical imperative would seem to be strongly against the beating, though since the purpose of the beating is not clear, it is not obvious to me if the prisoner is being treated purely as a means or not. In any case the beating violates his autonomy, meaning it is wrong according to the “reformulated practical imperative.” D[3] Kant’s categorical imperative would ask if we could universalize the rule “I should follow commands even if they involve beating a prisoner.” I’m not sure how many people would agree to that as a universal law. What about the rule “Do not beat prisoners”? Since it seems to follow from the practical imperative, I tend to think Kant would universalize it. But the only way to be sure, I would argue, is to base the rule on application of rule utilitarianism.

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COMM 394 Final Exam Page 7 of 9

9. Evaluate the following statement. Discuss the key issues at stake in the statement. Correct any parts of the statement that are wrong and explain why these corrections are necessary. “Rawls was correct to argue that behind the veil of ignorance we should choose to live in a society where rewards and advantages are determined solely by merit (measured performance).” 9. First point to make is this is not what Rawls argued for. He said behind veil of ignorance (VOI) we should choose policies that maximize the well being of the least-advantaged group (LAG). Furthermore, he said that inequalities are only justified to the extent that they help the LAG. Policies that give rewards for high “merit” will generate additional inequality that will not help the LAG. Why? Because the high merit group, for example CEOs may be rewarded for what they do for shareholders or consumers, not the poor (think of Steve Jobs). Could you use the VOI to argue for a merit-based reward system? Yes that seems like something a rational person might support—but it is not what Rawls argued for. A merit-based rule would have its own problems, however. First, who would get to determine how merit is measured. How do you compare the merit of the CEO of Suncor to the merit of a school teacher in Burnaby? Some measures of merit may be biased in favour of certain socioeconomic or ethnic groups. Another problem with merit-based rewards is that a substantial part of merit may be beyond the individual’s control. A simple example is sleep. Many CEOs are able to get by on 5 hours of sleep per night, whereas the average person needs 8. Should people be rewarded for what might be a genetic ability to get by on less sleep? What about the genetic and pre-natal (drinking, drug abuse) influences on IQ? Those are going to affect merit but not be controlled by the person in question. A final concern is whether merit-based rewards are allowed to be passed on to children. If so, then the children of meritorious people get an advantage not based on merit. If not, then the merit-based rewards are not true rewards because the recipient does not get to decide fully on how to use them.

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COMM 394 Final Exam Page 8 of 9

10. In the 2015 election Justin Trudeau promised to change Canada’s electoral system to “proportional representation.” Based on the results of the 2011 election explain why that would have been attractive to the Liberal party. However, based on the 2015 election, it might not be. For full points work “strategic voting” and “first past the post” into your answer! 10. In 2011, the conservatives got 40% of votes but 54% of the seats and could form the government. In 2015, it was reversed and it was Liberals who got 54% of the seats with 40% of the votes. These big differences were possible because we have multiple parties and a first past the post system (explain). Under proportional representation, both winning parties would have had 40% of the seats. One big difference in 2015 was that many of the the NDP voters seem to have voted strategically, i.e. cast their vote for their second favourite party to avoid their least favourite party keeping power.

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COMM 394 Final Exam Page 9 of 9

Name:

11. China has become an important part of the demand for premium Bordeaux wines, in the sense that as Chinese demand changes, it raises the price of the Bordeaux China imports. China is considering a tax of 30 dollars per bottle on imported Bordeaux. Currently China imports 100 (thousand) bottles and the market price in China is 50. China does not produce any wines remotely comparable to Bordeaux so there is no domestic supply curve. “A Chinese tax on imported Bordeaux could raise economic welfare in China.” [partial credit for verbal answer but full credit requires a large (8 lines high, similar width) diagram that clearly illustrates the effects of the tax on prices, quantity, and surplus for government and consumers and defends the answer in terms of these identified areas. ] 11. A[2] Diagram initial situation, showing upward sloping foreign supply curve . B[3] Diagram the tax (tariff). Show quantity falls to less than 100 [1pt] Show that price paid by consumers rises, but by less than the tax because the price received by French producers falls. If they label the new price it should (of course) be above 50, but lower than 80 since the tax is partly absorbed by the firms. The price increase is less than 30. C[1] Diagram the changes in consumers surplus. Consumers lose b + c + d in the diagram, the trapazoid below the new price and above the old price. D[1] Diagram the Government (taxpayers) revenue gain of b + c + e + f , the rectangle given by the tax (30), multiplied by the new quantity. E[2] Give the condition for welfare to improve. Chinese economic welfare rises if e + f > d. F[2] For extra credit, note that this is an example of the monopoly (really monopsony) tariff rationale for import tariffs.

price(

Supply( (foreign)(

a( 70( b(

50( 40(

t

e( h(

f(

c( d( g(

i(

{(

Demand( (domes%c)(

90( 100(

quan%ty(

(end of exam)...