TEST BANK For Corporate Finance, 13th Edition By Stephen Ross, Randolph Weste...
Pigscowssheep
1. 1.) JESSICA CHEN- Capitalism, Middlemen, Laisse-faire, Entrepenuer
2.) KYNING TILLINGHAST- Malthusism, Mercantalism, Bourgeoisie and Proletariat
3.) INGRID LIU- Robber Barons, Monopoly, Low-wage, Labour Unions & Big business
4.) CHRISTINE WANG- x,y,z factor, intellectual property
5.) VIVIAN CHEN- Insurance, Banking system, stock market, barter system
6.) SABRINA SHIH- Industrial Revolution, Inflation, Story of Stuff, Supply & Demand
1.) Capitalism, Middlemen, Laisse-faire, Entrepenuer
Capitalism:
Now i want you to stand and look around the things in the room, where do you think all these stuff are
produced and organized to be sold and also what is the purpose behind these things?
It starts of with capitalism. At this day, most owners, entrepreneurs or any producer still use the idea and
practice of capitalism to bring their products to the audience and most importantly, increase or preserve
the wealth for themselves and the economy. So how and when did capitalism evolve? Capitalism
popularized and became a significant key to the era of Industrial Revolution. It was also the key to
unlock the door to the great rise of the economy from Great Britain to other neighboring European
countries and then to America. During and after this era, Capitalism becomes an economic system
where capitalists are individuals in endeavor to use the means of production( capitals/ tools, materials,
land, property) to earn their profits and benefits. Basically capitalism relies on labor exploitations and
the capitals to use. These human exploitations which comes with productive labor--the human work
necessary to produce goods and distribute them--has become an immense social problem in Europe in
the 19th century and the 20th century, due their low wages the labours receive. During the Industrial
Revolution, the capital of the 19th century in Europe was machines, labour, and the materials they use to
create. For example, The textiles machines were used and operated by the labours, that is of any age that
is strong enough work , in the factories and then are produced into clothing or any textiles that then given
to the owner to show it the audience. Thus he earns the profits and shares little of it to the labours. The
labours get an insufficient money that is not enough to afford their necessary element of living. This must
be a pain to us if we were the labours but now, the moderns days, capitalism is considered old school and
is not much of a use anymore, according to the new accustoms of the way of economy by using ideas and
creativity , and then making new inventions individually without labor exploitation and capital.
Middlemen:
The middle men , started in the the 19th century , in the industrial revolution. the middle men were
the ones that made the most of the money through the process of producing a product to selling the
product. The “middlemen” refers to the person selling the product or either bringing the idea out and
efficiently from one. Therefore the producers of the product do not receive much credit, which are all in
the middlemen pockets, to afford their necessary needs for life. However, if the 19th century economy
was without the middlemen, there probably wouldn't be an Industrial Revolution, moreover, the world so
depended on the economy wouldn’t be what is like today.
Middlemens of today, CD Record companies, galleries,etc.
Laisse- faire:
The French term laissez-faire literally means "to let people do as they wish." In this case, capitalist
are engaged in free marketing, which reduces the restrictions of the government and allows
2. freedom in the economy, to do with whatever they have ( capitals) for personal benefits.
The term “laissez- faire” slogan was popularized by Vincent de Gournay, a french attendant
of commence in the 1750s. He was the player of the removal of restrictions on trade and
abolishing the regulations of the industry of France. He was incredibly inspired by the Colbert
Legendre ,who who said “Leave it be, that should be the motto of all public powers, as the world
is civilized ... That we cannot grow except by lowering our neighbors is a detestable notion!
Only malice and malignity of heart is satisfied with such a principle and our (national) interest
is opposed to it. Leave it be, for heaven's sake! Leave it be!”. Gournay transferred into his
slogan, “Let do and let pass, the world goes on by itself!"
Entrepenuer:
This term and idea started or either became quite popular in the Industrial Revolution. Entrepreneurs are
the creations of the new inventions and ideas. They flourished the economy and capital of many industries
in the Revolution. They also made a big impact on what we use today; such things ,that are created by the
famous entrepreneurs , like steam engines, the telegram, machines, cars and etc.
3) Robber Barons, Monopoly, Low-wage, Labour Unions & Big business
During the days of the American Industrial evolution, industrialists such as Andrew,
Carnegie, John D. Rockefeller, and Cornelius Vanderbilt have all created monopolies within the
big businesses around the world. These were family dynasties who literally cornered the market
on essential and influential industries, including railroads, steel, and petroleum industries.
People of the commons felt that these powerful industrialists of the gilded age should be
referred to as “robber barons.” They portrayed him as the cruel and ruthless businessmen who
3. exploited workers and forced horrible working conditions and unfair labor practices upon the
laborers; however, the other side of the view of industrialists were “captains of industries.” The
term captain views these men as great leaders who have transformed the American economy
tremendously and are worthy of appraisal for creating such impact. Industrialists like Andrew
Carnegie held a philanthropic view to the society, in other words, he believed that distributing
financial support to the poor and those in need are fairly important, which in the modern
society, is considered as a notable philosophic mindset.
Businessmen reaped enormous profits during the Gilded Age through some significant
strategies. Powerful tycoons formed giant trusts to monopolize the production of goods that
were high in demand. As mentioned, Andrew Carnegie was one of the Captains of Industry. He
has built a enormous steel empire using vertical integration. Conversely, Rockefeller’s Standard
Oil Company used horizontal integration, which eliminated numerous competitors out of
business by selling one single type of product in many markets, effectively creating a monopoly.
These “captains of industry” had rumors that they cared little for consumers and more of the
profits they can increase through tactics, thus earning the nickname of “robber barons.”
Organized labor did not fare nearly as well as big business during the Gilded age, as most
Americans looked down on labor unions during the era. The first large union was the National
Labor Union, formed right after the end of Civil War in 1866. Workers created the union to
protect skilled and unskilled workers. Despite all the unions for organized labor, workers
continued to strike for better wages, hours, and working conditions. Amongst the most exclusive
labor union, American Federation of Labor emerged as the most powerful union in the late
1880s.
5.) Insurance, Banking system, stock market, barter system
Insurance
Insurance often times refers to a promise of reimbursement in a risk or a loss; insurance, tied
closely to economics, has been around since a long time ago; however, often times not in the
form of currency and cash. The idea of insurance practices in the form of currency was first
popularized by Benjamin Franklin in 1752, where he established Philadelphia Contributionship
for the Insurance of Houses from Loss by Fire.
Main Principles:
● Indemnity
● Proximate cause
● Contribution
● Subrogation
● Utmost Good Faith
● Insurable Interest
Types of Insurance:
● Auto Insurance
● Home Insurance
● Finical Insurance
● Health/Funeral Insurance
4. ● Accident Insurance
● Unemployment Insurance
● Casualty Insurance
● Life Insurance
● Sickness Insurance
● Property Insurance
● Liability Insurance
● Credit Insurance
Controversies:
● Religion Concerns (Christians believe that insurance is a sign of lack of faith)
● Redlining (Denying the insurance coverage at certain geographical locations)
● Complexity of Insurance contracts
Banking System
A bank is a finical institution which accepts deposits and distributes the money to activities that
require finical support. The earliest evidence of a banking system dated back in 350-325 B.C on
a sliver Greek drachm coin, the picture depicts a banker’s table.
Impacts of Industrial Revolution:
The Industrial revolution had a significant impact on the banking systems throughout Europe,
creating the first national bank within Europe, channeling out more money, breaking out of the
mindset that money has a fixed amount. (It allowed people to invest with low interest rates)
Stock Market
The stock market, also known as the equity market, in a public entity in which companies
exchange stocks at an agreed price.
Stock market in the 19 th century:
The stock market originated about 200 years ago in the United States, this was the time when
a private banking system started to develop, the private banks raised money by issuing stocks
and shares, thus making the rich, richer.
Barter system
The barter system is wherer goods or services are directly exchanged for other goods or
services, no currency or money or involved throughout this process.
Industrial Revolution
The Industrial Revolution, a period of colossal and crucial changes, took place during the years of
1760-1850. During these years, fundamental changes occurred in textile, agriculture, and metal
manufacture; transportation also greatly improved.
The Industrial Revolution, refers to a period in the 18th and 19th century (1760-1850) of colossal
and crucial economic, social, technological, ideology, and cultural change. Before the Industrial
Revolution, the world’s economy was mainly based on manual labour, this transformed into a
mechanical industry. Improvement in agricultural techniques and machinery reaped a massive
increase in the supply of food and raw materials. Advanced technology resulted in increased
production, efficiency and profits which further resulted in an increase in commerce. The world
was changed industrially and economically: the improvement of iron making techniques sky-
5. rocketed production levels, the invention of steam-power powered the many existing and/or
emerging factories, the conoction of the Spinning Jenny resulted in much higher production at
a lower cost, and the creation of quicker and newer transportation networks (i.e: railroads) not
only transported goods but also networked the world’s ideas. As a result of the double-time
urbanisation, living conditions grew worse and people had to turn to cramped houses and living
conditions. The anti-technology groups, the Luddites, attacked and plundered factories in their
attempts of bringing an end to child labour, and improving better health and work conditions.
Though many sacrifices had to be made during this period, they were absolutely crucial to the
advancements which further progressed the world from a world lagging behind to a world full of
opportunities and innovations.
Inflation
“Inflation is always and everywhere a monetary phenomenon. To control inflation, you
need to control the money supply"- Milton Friedman
During the 19th century, the globe went through a dyad of industrial revolutions, both
of which sustained periods of falling prices. Economy in the world, specifically Europe sky-
rocketed during the late 1800s due to the heavy machinery that produced goods at a massive
amount. An important factor contributing to this sudden boon, sudden inflation, was the world’s
strong demand for steel. Bridges, railroads, tall buildings, and a myriad of machines that were
used to make living more convenient were all structures that required steel, thus the “steel
economy” increased rapidly. It wasn’t until the mid-19th century did people come up with a
quicker and more efficient way of producing steel—the Bessemer process. With the quicker
production of steel, America’s steel production grew from 15 thousand tons in 1865 to over
28 million tons by the year of 1910. Transportation advanced and improved at a significant
amount after the Bessemer process. In the late 1890s steel sold for about $12, which is a
major deflation since the the 1873 where a ton would cost $100. Because of the sudden drop
in steel prices, railroad companies snatched at the chance to lay thousands and thousands of
railroads. This speedy laying of tracks thus connected many cities which increased the mailing
6. of mails—furthermore, ideas were shared at a much quicker speed. Older towns became
more prosperous as a result of people moving out west to start new cities and towns with the
expansion of railroads.
The Story of Stuff
The story of stuff, an animated documentary directed and narrated by Annie Leonard of the life-
cycle of goods is one that raises many brows--what is she talking about?!
The Story of Stuff emphasizes and promotes sustainability and criticizes an over-load in
consumerism--a “disease” almost everybody has. Through this documentary, we’re given a
huge wake-up call through 7 different ‘levels’: Introduction, Extraction, Production, Distribution,
Consumption, Disposal, and Another Way. Despite the video being a video that promotes
a benevolent thought and one that tells the world about the truth of what’s really going on, I
strongly believe that this video is bias. The narrator fails to mention the benefits humans get
from consuming, but instead she promotes anti-capitalism with her anti-consumer beliefs. The
Story of Stuff video misrepresents a lot of its data and quite a large amount of the data used in
the video cannot be found online, or anywhere else for that matter. Anne Leonard advocates the
prospect of abandoning the system we use and live in today, however, I would like to cause a
storm in your brain by ending with this question: Can’t we alter our system and try to improve it
instead of trying to completely abandon it with ideals and bias-facts (mainly used to intimidate
consumers) that a large amount of people don’t agree with?
Supply & Demand
Supply and demand, a fundamental concept of economics, is a concept that is of pivotal
importance. Supply refers to how much the market can offer, the relation between price and
how much of a product and/or service that can be supplied at a certain price is known as the
supply relationship. Demand represents how much of a product and/or service is desired by
others. The relationship between price and supply is known as the demand relationship. In
the law of demand, if all factors remain the same, then the less people will be in demand for an
object if the price of the good is higher; so, the lower the price, the greater amount of buyers. In
the law of supply, it states that the higher the price, the greater the quantity supplied. By selling
goods and/or services at a higher level, increases revenue.
Christine:
Intellectual property
Intellectual property (IP) refers to creations of the mind: inventions, artistic, literary, symbols,
names and designed.etc. Going back about 1867 with the founding of the North German
Confederation whose constitution granted legislative power over the protection of intellectual
property. When the Paris Convention (1883) and the Berne Convention (1886) merged in
189, the organization moved to Geneva in 1960, and establish the World Intellectual Property
Organization (WIPO).
Richard Stallman argues that, although the term intellectual property is in wide use, it should be
rejected altogether, because it "systematically distorts and confuses these issues, and its use was
