Question

What is Economics?

1.Read the following case and answer the question at the end of it: Enron used to be "America's Most Innovative Company." However, Enron, as America's seventh largest company, was involved in the financial scandal in late 2001. Economists believe that "transparency" is critical to an efficient and healthy market. As a business partner of Enron, the Arthur Andersen accounting firm didn't disclose the accounting fraud. Why didn't the Arthur Andersen accounting firm uncover the fraud in the case of Enron?

Answer 1

Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different groups.

Arthur Andersen was hired by Enron nearly seven decades later and was instrumental in covering up their accounting fraud, ultimately leading to Andersen's demise. Andersen was paid US$52 million, half for auditing and half for consulting, which in part influenced them not to report Enron's true financial condition for fear of losing business. Had Andersen brought this to light, the firm would likely have been fired as auditor, but brought much-needed public scrutiny and SEC investigations.