Chapter 14
1. Laissez faire, as popularized by Scottish economist Adam Smith and British philosopher Herbert Spencer,
describes an economic philosophy that markets function best when left to their own devices, i.e., without, or
with minimal, government involvement or regulations.
3. c
5. The Securities Exchange Act of 1934 governs secondary markets, or what is typically referred to as the “stock
market.” In contrast to the primary market, which involves the initial sale of a security, such as through an
initial public offering (IPO), secondary markets involve subsequent buyers and sellers of securities. One key
difference is that primary market prices are set in advance, while secondary market prices are subject to
constantly changing market valuations, as determined by supply and demand and investor expectations.
7. d
9. In 1968, the Williams Act amended the Securities Exchange Act of 1934 so that investors could have advance
warning of possible corporate takeovers. If someone (individual/corporation) becomes the beneficial owner of
more than 5% of a company’s stock, that entity must file a Schedule 13D with the SEC within 10 days of
purchase. A beneficial owner is anyone with “voting and investment power over their shares.” There are a few
exceptions that apply, such as qualified institutional investors—large investors who are deemed to have
sophisticated knowledge of securities such that they do not need the same level of protection as general
investors. Insurance companies, state employee benefits plans, and investment companies are examples of
qualified institutional investors who are allowed to report their holdings at the end of the calendar year.
Answer Key
165