FBE 402
Study Questions for Section 3
The following questions are designed to focus your attention on key concepts, and highlight areas
where you should review the readings. Some questions are exactly like those that might appear on
an exam. Others are more conceptual, designed to help explore the concepts. If you are not sure
how to answer a question, first consult your notes and the readings )f that doesn work, feel free
to reach out to me 4he best way is to send me what you think is the answer and indicate what you
are uncertain about.
1. Define and explain the difference between campaign contributions and campaign spending.
2. What is an ndependent expenditure)n American politics, and why is it legally different from
candidate expenditure?
3. Define lobbying, and list some specific actions that lobbyists take.
4. Approximately how much money was spent on federal campaigns in the United States during
2019-2020? How does this amount of spending compare with the amount of money spent by
corporations advertising their products in the same time period? How does it compare to the
ôakes/f politics as represented by the federal budget?
5. Describe the difference in the way campaign expenditures and campaign contributions are
regulated in the United States. What is the reason for this difference?
6. How does the amount of money spent by businesses on campaigns compare to the amounts
spent on lobbying? How does the amount of money spent on lobbying by business compared to
the amount spent by consumer groups? Be as precise as possible, not just ore/r %ssŠ7. What rule would a business follow in determining how much to spend on political activities if it
treated this as an investment? How do long run considerations factor into this?
8. Milton Friedman argued that the responsibility of business is to maximize its profit. Go through
his argument step by step.
9. For each of the following corporate actions, discuss whether they would be allowed or
prohibited (or neither) according to the shareholder value maximization principle.
a) Invest in internship programs for underrepresented minorities.
b) Build a factory in a human-rights-abusing country.
c) Donate money to a local museum.
d) Donate money to a candidate running for office in the state where the company is
headquartered.
e) Lobby for a tax break that would reduce the companyàtax burden.
f) Lobby for a tax increase on new competitors in the companyàindustry.
g) Lobby for extended protection of the companyàintellectual property rights.
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10. Develop a counterargument to Friedman to the effect that businesses should care about social
goals. How would Friedman respond to this argument?
11. How would Friedman respond to the following objections to his argument, that is, objections
why firms should not maximize profits.
a) It is important for the company to take a long-run perspective and not just focus on short
run profits.
b) Government moves too slow to address important social issues.
c) Companies should care about workers, too, not just shareholders, because workers are
necessary for them to succeed.
12. Explain the difference between maximizing shareholder wealth and maximizing shareholder
welfare.
13. What are some difficulties in implementing shareholder welfare maximization? Explain how
these difficulties may or may not be overcome by: (i) voting, (ii) conscientious managers, (iii)
SRI funds.
14. What is a socially responsible investment (SRI) fund? Discuss how these funds differ from
conventional funds.
15. What is meant by ôakeholdersàList the main types of stakeholders.
16. What is the differences between the idea that corporations have responsibilities to stakeholders
(i) as a derivative of shareholder wealth maximization versus (ii) as an independent duty? Give
an example of a corporate decision for which the two principles would lead to different actions.
17. What is corporate social responsibility?
18. How can CSR and corporate political activities affect a firmàworkforce and costs?
19. List some of the risks for a company associated with political involvement.
2022-11-27
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