MGMT 209 - Chapter 4 || QUESTIONS WITH
COMPLETE ANSWERS.
The nature of contractural exchange correct answers Gives us:
-Contract Law
-Common Law
It is a fundamental part of our:
-economic system
-the legal environment of business
Contract Law correct answers A system of rules for ENFORCING promises and BREAKING
promises
Contract law tells us... correct answers -Which promises are legally enforceable
-the Consequences of breaking the promises
Societal Level of contracts correct answers Provide a legal environment conductive to
voluntary exchanges
From the individuals perspective, contracts serve which two functions? correct answers -the
facilitation of mutually beneficial exchanges
-the allocation of risk among the contracting parties
The two distinct agreements of contracts (these are the two economic functions of contracts)
correct answers -The agreement on performance
-The agreement on risk allocation
A fundamental purpose of the law of contracts is to... correct answers Facilitate beneficial
exchanges
Contract law serves to... correct answers -REDUCE the costs of transactions by imposing
external rules which CREATE rights and duties in the parties to the exchange.
-PROVIDE remedies in the event that the duties are breached.
In the absence of contract law... correct answers Voluntary mutual beneficial exchanges will
take place
The Mutually Beneficial Exchange system works when... correct answers Everyone is honest
What happens in a mutually beneficial exchange if people are not honest? correct answers
You will need market adjustments
Which means:
-reducing the demand for dishonest goods and services provided by dishonest and unfair
traders
When market adjustments do not work... correct answers You need contract law
All contracts are mutually beneficial when... correct answers Negotiated
, "Least cost-avoider or risks" correct answers Are better at minimizing costs associated with
risks
Example: grain dealer
They are better at minimizing risk because the engage in numerous buy and sell contracts so
that an unexpected up or down fluctuation in the market price of grain will not be disastrous
to them.
Efficient legal rules correct answers Enforce contracts when the risk is borne by the least cost
avoider of risk
Performance = correct answers Execution
Contingencies = correct answers Events
Executory Contract correct answers -Has not been fully performed by either party
-They fix future obligations
-This eliminates uncertainty and allocates the risk of future, unforeseen contingencies
Example:
-the agreement to repay a loan at some future date with a fixed rate of interest
Contract (definition) correct answers A legal agreement of the parties to:
-DO something NOT OBLIGATED to do
Or...
-to REFRAIN from doing something LEGALLY entitled to do
Contracts consist of... correct answers Promises
But not all promises are contracts
(MUST HAVE legal requirements of contract)
The intention of a party to enter into a contract is determined by... correct answers The
objective factor/standard
Objective standard correct answers What a reasonable person would have done
Objective factors include: correct answers -The CONDUCT of the party
-The WORDS spoken or written by the party
-The CIRCUMSTANCES surrounding the transactions
Types of Contracts correct answers -Express Contracts
-Implied Contracts
-Quasi Contracts
-Conditional Contracts
-Unconditional Contracts
-Bilateral Contracts
-Unilateral Contracts
-Executory Contracts
-Executed Contracts
-Valid Contracts
-Void Contracts
-Voidable Contracts
COMPLETE ANSWERS.
The nature of contractural exchange correct answers Gives us:
-Contract Law
-Common Law
It is a fundamental part of our:
-economic system
-the legal environment of business
Contract Law correct answers A system of rules for ENFORCING promises and BREAKING
promises
Contract law tells us... correct answers -Which promises are legally enforceable
-the Consequences of breaking the promises
Societal Level of contracts correct answers Provide a legal environment conductive to
voluntary exchanges
From the individuals perspective, contracts serve which two functions? correct answers -the
facilitation of mutually beneficial exchanges
-the allocation of risk among the contracting parties
The two distinct agreements of contracts (these are the two economic functions of contracts)
correct answers -The agreement on performance
-The agreement on risk allocation
A fundamental purpose of the law of contracts is to... correct answers Facilitate beneficial
exchanges
Contract law serves to... correct answers -REDUCE the costs of transactions by imposing
external rules which CREATE rights and duties in the parties to the exchange.
-PROVIDE remedies in the event that the duties are breached.
In the absence of contract law... correct answers Voluntary mutual beneficial exchanges will
take place
The Mutually Beneficial Exchange system works when... correct answers Everyone is honest
What happens in a mutually beneficial exchange if people are not honest? correct answers
You will need market adjustments
Which means:
-reducing the demand for dishonest goods and services provided by dishonest and unfair
traders
When market adjustments do not work... correct answers You need contract law
All contracts are mutually beneficial when... correct answers Negotiated
, "Least cost-avoider or risks" correct answers Are better at minimizing costs associated with
risks
Example: grain dealer
They are better at minimizing risk because the engage in numerous buy and sell contracts so
that an unexpected up or down fluctuation in the market price of grain will not be disastrous
to them.
Efficient legal rules correct answers Enforce contracts when the risk is borne by the least cost
avoider of risk
Performance = correct answers Execution
Contingencies = correct answers Events
Executory Contract correct answers -Has not been fully performed by either party
-They fix future obligations
-This eliminates uncertainty and allocates the risk of future, unforeseen contingencies
Example:
-the agreement to repay a loan at some future date with a fixed rate of interest
Contract (definition) correct answers A legal agreement of the parties to:
-DO something NOT OBLIGATED to do
Or...
-to REFRAIN from doing something LEGALLY entitled to do
Contracts consist of... correct answers Promises
But not all promises are contracts
(MUST HAVE legal requirements of contract)
The intention of a party to enter into a contract is determined by... correct answers The
objective factor/standard
Objective standard correct answers What a reasonable person would have done
Objective factors include: correct answers -The CONDUCT of the party
-The WORDS spoken or written by the party
-The CIRCUMSTANCES surrounding the transactions
Types of Contracts correct answers -Express Contracts
-Implied Contracts
-Quasi Contracts
-Conditional Contracts
-Unconditional Contracts
-Bilateral Contracts
-Unilateral Contracts
-Executory Contracts
-Executed Contracts
-Valid Contracts
-Void Contracts
-Voidable Contracts
