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Ethics and Values in Business > Unit 2- Ethical Decision Making > Flashcards

Unit 2- Ethical Decision Making Flashcards

1
Q

Market

A

a place where goods or services are bought and sold. ​

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2
Q

Decision Making in the Market

A

Decisions in the market are made based on price; which is determined by supply and demand.

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3
Q

Main feature of the Market System

A
  1. Private ownership of resources to make goods and services
  2. Voluntary Exchange- Individuals and firms are free to enter into mutually beneficial trades
  3. Profit Motive: Where economic actors trade to advance their own self-interest
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4
Q

General justifications of the Market system

A

-Promotion of Efficiency, and hence, welfare.

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5
Q

Arguments Justifying Market Systems

A

Utilitarian argument- Market systems produces the highest possible level of welfare for society (because they want reach efficiency- greatest output for least input)

Rights-Based argument- market system best protects our liberty, especially with respect to private property.​
(Like in Free market system- more freedom to owning private property and trade)

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6
Q

Free Markets and Utility in Adam Smith’s theory:

A

Market competition ensures the pursuit of self-interest in markets and advances the public’s welfare.​ (Utilitarianism)

public’s welfare is lowered in markets where government interferes (linked with rights-based argument)

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7
Q

John Locke thought on Free Market

A

Free-market economy should set rates as govt. Regulation could have unintended consequences

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8
Q

PURE Monopoly Market System

A

A single firm is the only seller in the market and new sellers are barred from entering.​

  • One dominant seller
  • Control over the supply and price
  • Monopoly profit can be made by selling less and charging more
  • High Barriers to entry
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9
Q

Ethical Weaknesses of Monopolies

A
  1. Violates capitalist justice. -charging more for products than producer knows they are worth​
  2. Violates utilitarianism.​ -removing incentives to use resources efficiently​
  3. Violates negative rights.​ - forcing companies to stay out, customers to buy what they do not want with price and quantity they do not want to be determined by the monopoly.
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10
Q

Perfect Competition

A

A free market in which no buyer or seller has the power to significantly affect the prices at which goods are being exchanged.​

  • Many sellers, many buyers
  • Perfect Knowledge
  • Freedom to entry and exit
  • Homogeneous goods
  • No govt interference
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11
Q

Oligopoly

A

A market shared by a relatively small number of large firms that together can exercise some influence on prices.

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12
Q

Unethical Practices of Oligopolies

A
  • Price-Fixing
  • Manipulation of Supply
  • Predatory Price discrimination- Each company lowers prices to knock out the other one.
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13
Q

Main views on Oligopoly Power

A
  1. Do-nothing view- Do nothing since the power of oligopolies is limited by competition between industries and by countervailing the power of large groups​
  2. Antitrust View- Large monopoly and oligopoly firms are anticompetitive and should be broken up into small companies​
  3. Regulation View​- Big companies are beneficial but need to be restrained by government regulation.​
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14
Q

Fraud

A

Material misrepresentation that is made with an intent to deceive​

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15
Q

Fraud Triangle- (Used in auditing to asses the risk of fraud)

A
  1. Pressures/strong incentives to do wrong(peer pressure, personal incentives)
  2. The Opportunity(includes the ability also)
  3. Ability to Rationalize
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16
Q

Rationalizations of Fraud

A
  1. No harm No Foul
  2. I deserve this
  3. It is for a good cause
  4. If I don’t do it someone else will
16
Q

Rationalizations of Fraud

A
  1. I deserve this
  2. Everyone is doing it
  3. If I don’t do it someone else will
  4. It’s what’s best for the company
17
Q

Market Failure

A

Failure of free market to allocate resources

18
Q

Causes for Market Failure

A
  1. Perfect Competition- Market fails because they deviate from perfect competition characteristic of efficiency.
  2. Perfect Rationality- Meaning consumer behaviour is wholly based on maximizing utility, which doesn’t exist, as there is bounded rationality- where lack of info causes consumers not to make choices to maximize utility. Eg- I want ice cream, but the prices are very low, and that’s the only info I have and there seems to be no other reason; I might just assume that the ice cream tastes bad and not buy it.
  3. Externalities- Positive externalities- Underproduction/consumption; Negative externalities- Overproduction/consumption
  4. Collective choice- If the people are rational, they will vote for things that will promote their own welfare, which will promote collective welfare (Utilitarianism- self interest advocacy)
19
Q

Prisoner’s Dilema

A

The paradox in decision analysis in which two individuals acting in their own self-interests do not result in the optimal outcome.

Remember Dave and Henry- Prisoners

20
Q

What is an Agent

A

A party that has been engaged to act on behalf of another (the principal)​
- Relationship called Agency Relationship

21
Q

What is a Fiduciary

A

A person who has been entrusted with the care of another’s property or assets

-Can make whatever decisions they want with it

22
Q

Fiduciary relationship has two elements:

A

Trust and Confidence

23
Q

What are the three main elements of Fiduciary Duty

A
  • Duty of Candour​: to disclose all information that the beneficiary would consider relevant to the relationship
  • Duty of Due Care​: A care that a reasonable, prudent person would exercise.
  • Loyalty: Requires that Fidicuary:
    1. Act in the best interest of the beneficiary, and
    2. Avoid taking any personal advantage- deriving any benefit from the relationship without the knowledge of the beneficiary.
24
Q

What are the Three common defining features of a Professional

A
  1. A specialized body of knowledge​
  2. A high degree of organization and self-regulation​
  3. A commitment to public service
25
Q

Problems and Solutions in Ethics in Markets

A

P S
Violation of Agreements (Contract Law) Contract Law,
Principles for Promise Keeping

Misrepresentation of Information (Fraud) Anti-Fraud Law
Principles for Honesty

Wrongful harm of others (torts) Tort Law
Principles for Due Care

Market Failure(Inefficiency Govt. Regulation-
antitrust laws,
consumer laws,
employment laws, taxation.
Special use of Market
Mechanisms (Price floor, ceiling)
Trust Worthy Behaviour

26
Q

What is Ethical Reasoning?

A

An intellectual procedure for justifying ethical judgments​

27
Q

Lawrence Kohlberg’s Perspective on Ethical Reasoning

A

Level Stages Ethical Reasoning
Pre- Conventional 1. Obedience and Punishment Focused on self and
Morality Orientation and cant do “other-
2. Self-Interest Orientation​ oriented” ethical
reasoning

Conventional 3. Good Interpersonal Relations​ People* are mindful of Morality​ 4. Authority and Social others, understand
Order Orientation rules and laws, and
conform to societal
expectations. ​

                                                                                        *Most adults​

Post-Conventional 5. Social Contract and People* can engage
Morality​ Individual Rights in mutually,
Orientation​ advantageous cooperation,
6. Universal Principle understand the value
Orientation​ of abstract moral principles,
and practice sophisticated
ethical reasoning.​

                                                                               *Fewer than 20% of adults​
28
Q

What makes up the Framework for Ethical Reasoning?

A
  1. Awareness of issues​
  2. Identifying issues​
  3. Resolving issues​
29
Q

What are the seven principles of Business conduct?

A

Welfare, Duty, Rights,

Fairness, Honesty, Dignity, Integrity​

30
Q

Issues in contracts that make a breach hard to identify

A

Implicit- Not written or signed, but rather implied (Done to avoid being legalistic over everything), and therefore cannot be legally enforced. Causes disagreements too, one person may see a breach, the other may not

Incomplete- Transaction too complex and uncertain, impossible to draft in detail. E.g. Drafting a contract to hire a CEO

Lack Remedies- In the market more focus is placed on the obligations of each party, but there is ambiguity in what should be done in the cases of a breach

31
Q

Considerations in cases of Wrongful Harms

A

Basic Morality obligation to each other

Compensation to be given to the sufferer

32
Q

Types of Wrongful Harms

A

Failure to Fulfil Due Care

Negligence

33
Q

On the side of victims, what do wrongful harms typically involve?

A

A violation of rights

Ethics and Values in Business (8 decks)

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