BUSINESS ETHICS business ethics A specialized study of moral right

CHAPTER 1 | Ethics and Business and wrong that concentrates on moral standards
as they apply to business institutions,
morality The standards that an individual or a organizations, and behavior
group has about what is right and wrong or good
and evil. Business Ethics Is a Study of:
• Our moral standards insofar as these apply to
moral standards The norms about the kindsof business
actions believed to bemorally right and wrong as • How reasonable or unreasonable these moral
well as the values placed on what we believe to standards we have absorbed from society are
be morally good and morally bad. • The implications our moral standards have for
business activities.
nonmoral standards The standards by which we
judge what is good or bad and right or wrong in a Kinds of Ethical Issues
nonmoral way. • Systemic—ethical questions about the social,
political, legal, or economic systems within which
Moral Norms and Nonmoral Norms companies operate
• From the age of three we can distinguish moral • Corporate—ethical questions about a particular
from nonmoral norms. corporation and its policies, culture, climate,
• From the age of three we tend to think that impact, or actions
moral norms are more serious than nonmoral • Individual—ethical questions about a particular
norms and apply everywhere independent of individual’s decisions, behavior, or character
what authorities say.
• The ability to distinguish moral from nonmoral Should Ethical Qualities be Attributed Only to
norms is innate and universal. People or Also to Corporations?
• One view says corporations, like people, act
Six Characteristics of Moral Standards intentionally and have moral rights, and
• Involve serious wrongs or significant benefits obligations, and are morally responsible.
• Should be preferred to other values including • Another view says it makes no sense to
self-interest attribute ethical qualities to corporations since
• Not established by authority figures they are not like people but more like machines;
• Felt to be universal only humans can have ethical qualities.
• Based on impartial considerations • A middle view says that humans carry out the
• Associated with special emotions and corporation’s actions so they are morally
vocabulary responsible for what they do and ethical qualities
apply in a primary sense to them; corporations
Ethics The discipline that examines one’s moral have ethical qualities only in a derivative sense.
standards or the moral standards of a society to
evaluate their reasonableness and their law of agency A law that specifies the duties of
implications for one’s life. persons who agree to act on behalf of another
party and who are authorized by an agreement so
normative study An investigation that attempts to act.
to reach conclusions about what things are good
or bad or about what actions are right or wrong. Arguments Against Ethics in Business
• In a free market economy, the pursuit of profit
descriptive study An investigation that attempts will ensure maximum social benefit so business
to describe or explain the world without reaching ethics is not needed.
any conclusions about whether the world is as it • A manager’s most important obligation is
should be. loyalty to the company regardless of ethics.
• So long as companies obey the law they will do
all that ethics requires.
Arguments Supporting Ethics in Business globalization The worldwide process by which
• Ethics applies to all human activities. the economic and social systems of nations have
• Business cannot survive without ethics. become connected facilitating between them the
• Ethics is consistent with profit seeking. flow of goods, money, culture, and people.
• Customers, employees, and people in general
care about ethics. Multinational corporation A company that
• Studies suggest ethics does not detract from maintains manufacturing, marketing, service, or
profits and seems to contribute to profits. administrative operations in several “host”
countries.
Corporate Social Responsibility Is a Business’s
Societal Obligations Globalization Is
• The shareholder view of Friedman says a • To a large extent driven by multinationals
manager’s only responsibility is to legally and • Beneficial in that it has brought great benefits
ethically make as much money as possible for to developing countries including jobs, skills,
shareholders. income, technology, a decrease in poverty,
• Stakeholder theory says managers should give specialization
all stakeholders a fair share of the benefits a • Blamed for many ills including rising inequality,
business produces. cultural losses, a “race to the bottom,”
• Business ethics is both a part of corporate social introduction of inappropriate technologies into
responsibility and part of the justification for developing countries.
corporate social responsibility.
Differences Among Nations
information technology • Include differences in laws, governments,
The use of extremely powerful and compact practices, levels of development, cultural
computers, the Internet, wireless understandings
communications, digitalization, and numerous • Raise the question whether managers in foreign
other technologies that have enabled us to countries should follow local standards or their
capture, manipulate, and move information in home standards
new and creative ways.
ethical or moral relativism The theory that there
cyberspace A term used to denote the existence are no ethical standards that are absolutely true
of information on an electronic network of linked and that apply or should be applied to the
computer systems. companies and people of all societies..

New Technologies Raise New Ethical Issues for Objections to Ethical Relativism
Business • Some moral standards are found in all societies.
• The agricultural and industrial revolutions • Moral differences do not logically imply
introduced new ethical issues. relativism.
• Information technology raises new ethical • Relativism has incoherent consequences.
issues related to risk, privacy, and property rights. • Relativism privileges whatever moral standards
• Nanotechnology and biotechnology raise new are widely accepted in a society.
ethical issues related to risk and to the spread of
dangerous products. Integrative Social Contracts Theory Indicates
that
nanotechnology A new field that encompasses • Hypernorms should apply to people in all
the development of tiny artificial structures only societies
nanometers (billionths of a meter) in size. • Microsocial norms apply only in specific
societies and differ from one society to another.
genetic engineering A large variety of new
techniques that allows change in the genes of the
cells of humans, animals, and plants.
Kohlberg’s Three Levels of Moral Development Four Steps Leading to Ethical Behavior
• Preconventional (punishment and obedience; • Recognizing a situation is an ethical situation
instrumental and relative) • Judging what the ethical course of action is
• Conventional (interpersonal concordance; law • Deciding to do the ethical course of action
and order) • Carrying out the decision.
• Postconventional (social contract; universal
principles). Recognizing a Situation as Ethical
• Requires framing it as one that requires ethical
Gilligan’s Theory of “Female” Moral reasoning
Development • Situation is likely to be seen as ethical when it
• For women morality is primarily a matter of involves serious harm that is concentrated, likely,
caring and responsibility. proximate, imminent, and potentially violates our
• Moral development for women is progress moral standards
toward better ways of caring and being • Obstacles to recognizing a situation is ethical
responsible. include: euphemistic labeling, justifying our
• Women move from a conventional stage of actions, advantageous comparisons,
caring only for oneself, to a conventional stage of displacement of responsibility, diffusion of
caring for others to the neglect of oneself, to a responsibility, distorting the harm, and
postconventional stage of achieving a balance dehumanization, and attribution of blame.
between caring for others and caring for oneself.
A Judgment About the Ethical Course of Action
Research on Moral Identity Suggests • Requires moral reasoning that applies our
• Morality is not an important part of the self moral standards to the information we have
until middle adolescence about a situation
• The more morality becomes part of the self, the • Requires realizing that information about a
stronger the motivation to be moral situation may be distorted by biased theories
• Judgments of right and wrong depend in part about the world, about others, and about
on the kind of person we think the self is, i.e., on oneself.
the virtues we think are part of our self.
Deciding to do What is Ethical can be Influenced
Psychological Research on Moral Reasoning by
• Suggests that emotions are necessary for moral • The culture of an organization
reasoning. • Moral seduction

moral reasoning The reasoning process by which Carrying Out One’s Decision Can Be Influenced
human behaviors, institutions, or policies are by
judged to be in accordance with or in violation of • One’s strength or weakness of will
moral standards. • One’s belief about the locus of control of one’s
actions.
Moral Reasoning Involves
• The moral standards by which we evaluate A Person is Morally Responsible for an Injury
things Only If:
• Information about what is being evaluated • Person caused or helped cause the injury, or
• A moral judgment about what is being failed to prevent it when he or she could and
evaluated. should have.
• Person did so knowing what he or she was
Moral Reasoning Should doing
• Be logical • Person did so of his or her own free will
• Rely on evidence or information that is
accurate, relevant, and complete
• Be consistent.
Depending on How Serious a Wrong is, Moral
Responsibility for it Can be Mitigated by
• Minimal contribution
• Uncertainty
• Difficulty.

Moral Responsibility is not Removed nor

Mitigated by
• The cooperation of others
• Following orders
BUSINESS ETHICS Criticisms of Utilitarianism
CHAPTER 2 | Ethical Principles in Business • Critics say not all values can be measured.
• Utilitarians respond that monetary or other
ethic of care An ethic that emphasizes caring for the commonsense measures can measure everything.
concrete well being of those near to us. • Critics say utilitarianism fails with rights and justice.
• Utilitarians respond that rule-utilitarianism can deal
ethic of virtue An ethic based on evaluations of the with rights and justice.
moral character of persons or groups.
right An individual’s entitlement to something
utilitarianism A general term for any view that holds
that actions and policies should be evaluated on the legal right An entitlement that derives from a legal
basis of the benefits and costs they will impose on system that permits or empowers a person to act in a
society. specified way or that requires others to act in certain
ways toward that person.
utility The inclusive term used to refer to any net
benefits produced by an action. moral rights or human rights Rights that all human
beings everywhere possess to an equal extent simply
Utilitarianism by virtue of being human beings.
• Advocates maximizing utility
• Matches well with moral evaluations of public Characteristics of Rights
policies • A right is an individual’s entitlement to something.
• Appears intuitive to many people • Rights derived from a legal system confer
• Helps explain why some actions are generally wrong entitlements only on individuals who live where that
and others are generally right legal system is in force.
• Influenced economics. • Moral or human rights are entitlements that moral
norms confer on all people regardless of their legal
cost–benefit analysis A type of analysis used to system.
determine the desirability of investing in a project by
calculating whether its present and future economic Moral Rights
benefits outweigh its present and future economic • Can be violated even when “no one is hurt”
costs. • Are correlated with duties others have toward the
person with the right
efficiency Operating in such a way that one produces • Provide individuals with autonomy and equality in
a desired output with the lowest resource input. the free pursuit of their interests
• Provide a basis for justifying one’s actions and for
noneconomic goods Goods, such as life, love, invoking the protection or aid of others
freedom, equality, health, beauty, whose value is such • Focus on securing the interests of the individual
that it cannot be measured in economic terms. unlike utilitarian standards which focus on securing
the aggregate utility of everyone in society.
instrumental goods Things that are considered
valuable because they lead to other good things. negative rights Duties others have to not interfere in
certain activities of the person who holds the right.
intrinsic goods Things that are desirable independent
of any other benefits they may produce. positive rights Duties of other agents (it is not always
clear who) to provide the holder of the right with
justice Distributing benefits and burdens fairly among whatever he or she needs to freely pursue his or her
people. interests.

rights Individual entitlements to freedom of choice Three Kinds of Moral Rights

and well-being • Negative rights require others leave us alone.
• Positive rights require others help us.
rule-utilitarianism A form of utilitarianism that limits • Contractual or special rights require people keep
utilitarian analysis to evaluations of moral rules. their agreements.

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Contractual Rights and Duties Criticisms of Kant
• Are created by specific agreements and conferred • Both versions of the categorical imperative are
only on the parties involved unclear.
• Require publicly accepted rules on what constitutes • Rights can conflict and Kant’s theory cannot resolve
agreements and what obligations agreements impose such conflicts.
• Underlie the special rights and duties imposed by • Kant’s theory implies moral judgments that are
accepting a position or role in an institution or mistaken.
organization
• Require: libertarian philosophers Believe that freedom from
(1) the parties know what they are agreeing to, human constraint is necessarily good and that all
(2) no misrepresentation, constraints imposed by others are necessarily evil
(3) no duress or coercion, except when needed to prevent the imposition of
(4) no agreement to an immoral act. greater human constraints.

categorical imperative In Kant a moral principle that Robert Nozick

obligates everyone regardless of their desires and that • Claimed the only moral right is the negative right to
is based on the idea that everyone should be treated freedom which implies that restrictions on freedom
as a free person equal to everyone else. are unjustified except to prevent greater restrictions
on freedom
maxim The reason a person in a certain situation has • Claimed the right to freedom requires private
for doing something he or she plans to do. property, freedom of contract, free markets, and the
elimination of taxes to pay for social welfare programs
Kant’s First Version of the Categorical Imperative • Since the freedom of one person always restricts the
• We must act only on reasons we would be willing to freedom of others, Nozick’s claim that restrictions on
have anyone in a similar situation act on. freedom are unjustified implies that freedom itself is
• Requires universalizability and reversibility. unjustified.
• Similar to questions: “What if everyone did that?”
and “How would you like it if someone did that to Types of Justice
you?” • Distributive Justice: just distribution of benefits and
burdens
Kant’s Second Version of the Categorical Imperative • Retributive Justice: just imposition of punishments
• Never use people only as a means to your ends, but and penalties
always treat them as they freely and rationally • Compensatory Justice: just compensation for
consent to be treated and help them pursue their wrongs or injuries
freely and rationally chosen ends.
• Based on the idea that humans have a dignity that distributive justice Requires distributing society’s
makes them different from mere objects. benefits and burdens fairly.
• It is, according to Kant, equivalent to the first
formulation. retributive justice Requires fairness when blaming or
punishing persons for doing wrong.
Kant and Moral Rights
• Kant’s theory implies that individuals generally must compensatory justice Requires restoring to a person
be left equally free (or helped) to pursue their what the person lost when he or she was wronged by
interests while moral rights identify the specific someone.
interests individuals should be entitled to freely
pursue (or be helped to pursue). political equality Equal participation in, and
• An interest is important enough to become a right if: treatment by, the political system.
(1) we would not be willing to have everyone
deprived of the freedom to pursue that interest, and economic equality Equality of income, wealth, and
(2) the freedom to pursue that interest is needed to opportunity.
live as free and rational beings.
puritan ethic The view that every individual has a
religious obligation to work hard at his or her calling
(the career to which god summons each individual).

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work ethic The view that values individual effort and An Ethic of Care
believes that hard work does and should lead to • Claims ethics need not be impartial, unlike
success. traditional ethical theories which assume ethics has to
be impartial
productivity The amount an individual produces or • Emphasizes preserving and nurturing concrete
that a group produces per person. valuable relationships
• Says we should care for those dependent on and
principle of equal liberty The claim that each citizen’s related to us
liberties must be protected from invasion by others • Argues that since the self requires caring
and must be equal to those of others. relationships with others, those relationships are
valuable and should be nurtured.
difference principle The claim that a productive
society will incorporate inequalities, but takes steps to In an Ethic of Care
improve the position of the neediest members of • Caring is not detached but an engrossed “caring for”
society. a person
• Relationships are not valuable when characterized
principle of fair equality of opportunity The claim by domination, oppression, harm, hatred, violence,
that everyone should be given an equal opportunity disrespect, viciousness; injustice, or exploitation
to qualify for the more privilege positions in society’s • The demands of caring and of justice can conflict
institutions. and such conflicts should be resolved in ways that do
not betray our voluntary commitments to others and
original position An imaginary meeting of rational relationships with them.
self-interested persons who must choose the
principles of justice by which their society will be ethic of care An ethic that requires caring for the
governed. concrete well being of those particular persons with
whom we have valuable close relationships,
veil of ignorance The requirement that persons in the particularly those dependent on us.
original position must not know particulars about
themselves which might bias their choices such as communitarian ethic An ethic that sees concrete
their sex, race, religion, income, social status, etc. communities and communal relationships as having a
fundamental value that should be preserved and
Summary of Principles of Distributive Justice maintained
• Fundamental: distribute benefits and burdens
equally to equals and unequally to unequals Objections to Care Approach to Ethics
• Egalitarian: distribute equally to everyone • Objection: an ethic of care can degenerate into
• Capitalist: distribute according to contribution favoritism
• Socialist: distribute according to need and ability • Response: conflicting moral demands are an
• Libertarian: distribute by free choices inherent characteristic of moral choices
• Rawls: distribute by equal liberty, equal opportunity, • Objection: an ethic of care can lead to “burnout”
and needs of disadvantaged. • Response: adequate understanding of ethic of care
will acknowledge the need of the caregiver to care for
retributive justice Fairness when blaming or punishing him or herself.
persons for doing wrong.
Moral Judgments Should be Based on
compensatory justice Fairness when restoring to a • Maximizing the net utility of our actions
person what the person lost when he or she was • Respecting the moral rights of individuals
wronged by someone else. • Ensuring a just distribution of benefits and burdens
• Caring for those in concrete relationships.

moral virtue An acquired disposition that is valued as

part of the character of a morally good human being
and that is exhibited in the person’s habitual behavior.

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Theories of Moral Virtue Moral Intuitions
• Aristotle: virtues are habits that enable a person to • Prototypes can be shaped by “hardwired” moral
live according to reason by habitually choosing the intuitions, as well as by conscious moral reasoning and
mean between extremes in actions and emotions cultural influences.
• Aquinas: virtues are habits that enable a person to • Hardwired intuitions seem to include: incest is
live reasonably in this world and be united with God in wrong; harming by action is worse than harming by
the next omission; harming as a means to a goal is worse than
• MacIntyre: virtues are dispositions that enable a harming as a foreseen side effect; harming by physical
person to achieve the good at which human contact is worse than harming without physical
“practices” aim contact.
• Pincoffs: virtues are dispositions we use when
choosing between persons or potential future selves. Conscious Moral Reasoning
• Is used in new, strange, or unusual situations for
virtue theory The theory that the aim of the moral life which the brain has no matching prototypes
is to develop those general dispositions called moral • Consists of the conscious, logical but slow processes
virtues , and to exercise and exhibit them in the many of the brain’s “C-system”
situations that human life sets before us. • Evaluates how reasonable or unreasonable are our
intuitions, our cultural beliefs, and the norms stored
Virtue Theory Claims in our prototypes.
• We should exercise, exhibit, and develop the virtues
• We should avoid exercising, exhibiting, and
developing vices
• Institutions should instill virtues not vices.

Objections to Virtue Theory

• It is inconsistent with psychology which showed in
the Milgram and Princeton studies that behavior is
determined by the external situation, not moral
character.
• Defenders of virtue say moral character determines
behavior in a person’s familiar environment and
recent psychology shows behavior is determined by
one’s moral identity which includes one’s virtues and
vices.

Unconscious Moral Decisions

• Comprise most of our moral decisions
• Made, according to psychologists, by the brain’s “X-
system” using stored prototypes to automatically and
unconsciously identify what it perceives and what it
should do.

Prototypes and Rationality

• The brain’s use of prototypes is similar to using
paradigms in casuistry or precedents in common law
which are both rational processes.
• This similarity implies the use of prototypes is also a
rational process.
• Conscious reasoning can also correct and shape our
prototypes.

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BUSINESS ETHICS Quick Review 2
CHAPTER 3 | THE BUSINESS SYSTEM: GOVERNMENT, Weaknesses of Locke’s Views on Rights
MARKETS, AND INTERNATIONAL TRADE • Locke does not demonstrate that individuals have
“natural” rights to life, liberty, and property.
globalization The process by which the economic and • Locke’s natural rights are negative rights and he
social systems of nations are connected together so does not show these override conflicting positive
that goods, services, capital, and knowledge move rights.
freely between nations. • Locke’s rights imply that markets should be free, but
free markets can be unjust and can lead to
economic system The system a society uses to inequalities.
provide the goods and services it needs to survive and • Locke wrongly assumes human beings are atomistic
flourish. individuals.

tradition-based societies Societies that rely on invisible hand According to Adam Smith, the market
traditional communal roles and customs to carry out competition that drives self-interested individuals to
basic economic tasks. act in ways that serve society.

command economy An economic system based Quick Review 3

primarily on a government authority (a person or a According to Adam Smith
group) making the economic decisions about what is • Market competition ensures the pursuit of self-
to be produced, who will produce it, and who will get interest in markets advances the public’s welfare
it. which is a utilitarian argument.
• Government interference in markets lowers the
market economy An economic system based primarily public’s welfare by creating shortages or surpluses.
on private individuals making the main decisions
about what they will produce and who will get it. Quick Review 4
Additional Support for Adam Smith
free markets Markets in which each individual is able • Hayek and von Mises argued governments should
to voluntarily exchange goods with others and to not interfere in markets because they cannot have
decide what will be done with what he or she owns enough information to allocate resources as efficiently
without interference from government. as free markets.
• Smith assumes a system of private property like
ideology A system of normative beliefs shared by Aquinas defends with the utilitarian argument that
members of some social group. private ownership leads to better care and use of
resources than common ownership.
Quick Review 1
In Locke’s State of Nature Quick Review 5
• All persons are free and equal. Criticisms of Smith’s Argument
• Each person owns his body and labor, and whatever • Rests on unrealistic assumption that there are no
he mixes his own labor into. monopoly companies.
• People’s enjoyment of life, liberty, and property are • Falsely assumes that all the costs of manufacturing
unsafe and insecure. something are paid by manufacturer, which ignores
• People agree to form a government to protect and the costs of pollution.
preserve their right to life, liberty, and property. • Falsely assumes human beings are motivated only
by a self-interested desire for profit.
Lockean rights The right to life, liberty, and property. • Unlike what Hayek and von Mises said in support of
Smith, some government planning and regulation of
markets is possible and desirable.

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Say’s Law In an economy, all available resources are
used and demand always expands to absorb the comparative advantage A situation where the
supply of commodities made from them. opportunity costs (costs in terms of other goods given
up) of making a commodity are lower for one country
aggregate demand According to John Maynard than for another.
Keynes, the sum of the demand of three sectors of the
economy: households, businesses, and government. Quick Review 8
Free Trade
Keynesian economics The theory of John Maynard • Advocated by Smith who showed everyone prospers
Keynes that free markets alone are not necessarily the if nations specialize in making and exporting goods
most efficient means for coordinating the use of whose production costs for them are lower than for
society’s resources. other nations.
• Advocated by Ricardo who showed everyone
post-Keynesian school Economists who have sought prospers if nations specialize in making and exporting
to challenge and modify Keynesian economics. goods whose opportunity costs to them are lower
than the opportunity costs other nations incur to
Quick Review 6 make the same goods.
Keynes’ Criticism of Smith • The arguments of Smith and Ricardo provide
• Keynes said Smith wrongly assumes demand is support for globalization.
always enough to absorb the supply of goods.
• But if households forego spending, demand can be Quick Review 9
less than supply, leading to cutbacks, unemployment, Objections to Ricardo’s Theory
and economic depression. • His argument ignores the easy movement of capital
• Government spending can make up for such by companies.
shortfalls in household spending, so government • He falsely assumed that a country’s production costs
should intervene in markets. are constant.
• But Keynes’ views were challenged when • He ignored the influence of international rule
government spending did not cure high setters.
unemployment but created inflation.
means of production The buildings, machinery, land,
social Darwinism Belief that economic competition and raw materials used in the production of goods
produces human progress. and services.

survival of the fittest Charles Darwin’s term for the alienation In Marx’s view, the condition of being
process of natural selection. separated or estranged from one’s true nature or true
human self.
naturalistic fallacy The assumption that what happens
naturally is always what is good. Quick Review 10
Marx on Alienation
Quick Review 7 • In capitalism, workers become alienated when they
Views of Herbert Spencer lose control of their own life activities and the ability
• Evolution operates in society when economic to fulfill their true human needs.
competition ensures the fittest survive and the unfit • Capitalism alienates workers from their own
do not, which improves the human race. productive work, the products of their work, their
• If government intervenes in the economy to shield relationships with each other, and from themselves.
people from competition, the unfit survive and the • Alienation also occurs when the value of everything
human race declines, so government should not do is seen in terms of its market price.
so.
• Spencer assumes those who survive in business are
“better” people than those who do not.

absolute advantage A situation where the production

costs (costs in terms of the resources consumed in
producing the good) of making a commodity are lower
for one country than for another.
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Quick Review 11 • The combined effects of the above causes
Marx and Private Property immiseration of workers.
• Private ownership of the means of production is the • The only solution is a revolution that establishes a
source of the worker’s loss of control over work, classless society where everyone owns the means of
products, relationships, and self. production.
• Productive property should serve the needs of all
and should not be privately owned, but owned by Quick Review 14
everyone. Criticism of Marx
• Marx’s claims that capitalism is unjust are
economic substructure The materials and social unprovable.
controls • Justice requires free markets.
that society uses to produce its economic goods. • The benefits of private property and free markets
are more important than equality.
social superstructure A society’s government and its • Free markets can encourage community instead of
popular ideologies. causing alienation.
• Immiseration of workers has not occurred; instead
forces of production The materials (land, labor, their condition has improved.
natural resources, machinery, energy, technology)
used in production. mixed economy An economy that retains a market
and private property system but relies heavily on
relations of production The social controls used in government policies to remedy their deficiencies.
producing goods (i.e., the social controls by which
society organizes and controls its workers). intellectual property Nonphysical property that
consists of knowledge or information such as
Quick Review 12 formulas, plans, music, stories, texts, software, etc.
Marx’s Historical Materialism
• The methods a society uses to produce its goods copyright A grant that indicates that a particular
determines how that society organizes its workers. expression of an idea is the private property of an
• The way a society organizes its workers determines individual or a company.
its social
classes.
• A society’s ruling social class controls society’s
government and ideologies and uses these to advance
its own interests and control the working classes.

historical materialism The Marxist view of history as

determined by changes in the economic methods by
which humanity produces the materials on which it
must live.

immiseration of workers The combined effects of

increased concentration, cyclic crises, rising
unemployment, and declining relative compensation.

Quick Review 13
Immiseration of Workers
• Marx claimed capitalism concentrates industrial
power in the hands of a few who organize workers for
mass production.
• Mass production in the hands of a few leads to
surplus which causes economic depression.
• Factory owners replace workers with machines
which creates unemployment; they keep wages low to
increase profits.

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BUSINESS ETHICS Quick Review 1
CHAPTER 4 | ETHICS IN THE MARKETPLACE Equilibrium in Perfectly Competitive Market Price
and quantity move to equilibrium in perfectly
perfect competition A free market in which no buyer competitive market because:
or seller has the power to significantly affect the • If price rises above equilibrium, surplus appears and
prices at which goods are being exchanged. drives price down to equilibrium.
• If price falls below equilibrium, shortage appears
pure monopoly A market in which a single firm is the and drives price up to equilibrium.
only seller in the market and which new sellers are • If quantity is less than equilibrium, profits rise,
barred from entering. attracting sellers who increase quantity to
equilibrium.
oligopoly A market shared by a relatively small • If quantity is more than equilibrium, prices fall,
number of large firms that together can exercise driving sellers out which lowers quantity to
some influence on prices. equilibrium.

market A forum in which people come together to Quick Review 2

exchange ownership of goods; a place where goods or Justice in Perfectly Competitive Market
services are bought and sold. • For buyer, prices are just (capitalist justice) only on
the demand curve.
equilibrium point In a market, the point at which the • For seller, prices are just (capitalist justice) only on
quantity buyers want to buy equals the quantity the supply curve.
sellers want to sell, and at which the highest price • Perfectly competitive markets move price to
buyers are willing to pay equals the lowest price equilibrium point which is on both supply and demand
sellers are willing to take. curves and so is just for both buyer and seller.

demand curve A line on a graph indicating the Quick Review 3

quantity of a product buyers would purchase at each Utility in Perfectly Competitive Market
price at which it might be selling; the supply curve also • Prices in the system of perfectly competitive
can be understood as showing the highest price markets attract resources when demand is high and
buyers on average would be willing to pay for a given drives them away when demand is low, so resources
amount of a product. are allocated efficiently.
• Perfectly competitive markets encourage firms to
principle of diminishing marginal utility The principle use resources efficiently to keep costs low and profits
that generally each additional unit of a good a person high.
consumes is less satisfying than each of the earlier • Perfectly competitive markets let consumers buy
units the person consumed. the most satisfying bundle of goods, so they distribute
goods in way that maximizes utility.
supply curve A line on a graph indicating the quantity
of a product sellers would provide for each price at Quick Review 4
which it might be selling; the supply curve also can be Rights in Perfectly Competitive Market
understood as showing the price sellers must charge • Perfectly competitive market respects right to freely
to cover the average costs of supplying a given choose the business one enters.
amount of a product. • In perfectly competitive market, exchanges are
voluntary so respect rights of free choice.
principle of increasing marginal costs The principle • In perfectly competitive market, no seller exerts
that after a certain point, each additional unit a seller coercion by dictating prices, quantities, or kinds of
produces costs more to produce than earlier units. goods consumers must buy.

point of equilibrium The point on a graph at which

the supply and demand curves meet, so the quantity
buyers want to buy equals the quantity sellers want to
sell and the price buyers are willing to pay equals the
price sellers are willing to take.

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Quick Review 5 horizontal merger The unification of two or more
Perfectly Competitive Free Markets companies that were formerly competing in the same
• Achieve capitalist justice (but not other kinds of line of business.
justice like justice based on need)
• Satisfy a certain version of utilitarianism (by price-fixing An agreement between firms to set their
maximizing utility of market participants but not of all prices at artificially high levels.
society)
• Respect some moral rights (negative rights but often manipulation of supply When firms in an oligopoly
not positive rights) industry agree to limit their production so that prices
• Can lead to ignoring the demands of caring and rise to levels higher than those that would result from
value of human relationships free competition.
• Can encourage vices of greed and self-seeking and
discourage virtues of kindness and caring market allocation When companies in an oligopoly
• Can be said to embody justice, utility, and rights only divide up the market among themselves and agree to
if seven defining features are present. sell only to customers in their part of the market.

Quick Review 6 bid rigging A prior agreement that a specific party will
Monopoly Markets get a contract even though all parties will submit bids
• One dominant seller controls all or most of the for the contract.
market’s product, and there are barriers to entry that
keep other companies out. exclusive dealing arrangements When a firm sells to a
• Seller has the power to set quantity and price of its retailer on condition that the retailer will not
products on the market. purchase any products from other companies and/or
• Seller can extract monopoly profit by producing less will not sell outside of a certain geographical area.
than equilibrium quantity and setting price below
demand curve but high above supply curve. tying arrangements When a firm sells a buyer a
• High entry barriers keep other competitors from certain good only on condition that the buyer agrees
bringing more product to the market. to purchase certain other goods from the firm.

Quick Review 7 retail price maintenance agreements Occurs when a

Ethical Weaknesses of Monopolies manufacturer sells to a retailer only on condition that
• Violate capitalist justice by charging more for the retailer agree to charge the same set retail prices
products than producer knows they are worth for its goods.
• Violate utilitarianism by keeping resources out of
monopoly market where shortages show more are predatory price discrimination Price discrimination
needed and diverting them to markets without such aimed at running a competitor out of business.
shortages; and by removing incentives to use
resources efficiently price discrimination To charge different prices to
• Violate negative rights by forcing other companies different buyers for identical goods or services.
to stay out of the market, by letting monopolist force
buyers to purchase goods they do not want, and by Quick Review 8
letting monopolist makes price and quantity decisions Unethical Practices in Oligopoly Markets
that consumer is forced to accept. • Price-fixing
• Manipulation of supply
imperfectly competitive markets Markets that lie • Market allocation
somewhere on the spectrum between the two • Bid rigging
extremes of the perfectly competitive market with • Exclusive dealing arrangements
numerous sellers and the monopoly market with one • Tying arrangements
dominant seller. • Retail price maintenance agreements
• Predatory price discrimination.
highly concentrated markets Oligopoly markets that
are dominated by a few (e.g., three to eight) large
firms.

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Quick Review 9
The Fraud Triangle
• The pressures or strong incentives to do wrong, such
as organizational pressure, peer pressure, company
needs, personal incentives
• The opportunity to do wrong, which includes the
ability to carry out the wrongdoing, being presented
with circumstances that allow it, low risk of detection
• The ability to rationalize one’s action by framing it as
morally justified.

price leader The firm recognized as the industry

leader in oligopoly industries for the purpose of
setting prices based on levels announced by that firm.

a trust An alliance of previously competitive

oligopolists formed to take advantage of monopoly
powers.

Sherman Antitrust Act Federal law passed in 1890

that prohibits competitors from getting together to
reduce competition or using monopoly power to keep
or expand a monopoly.

Quick Review 10
Main Views on Oligopoly Power
• Do-nothing view says do nothing since power of
oligopolies is limited by competition between
industries and by countervailing power of large
groups; also oligopolies are competitive and big U.S.
companies are good international competitors
• Antitrust view says large monopoly and oligopoly
firms are anticompetitive and should be broken up
into small companies
• Regulation view says big companies are beneficial
but need to be restrained by government regulation.

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BUSINESS ETHICS Quick Review 3
CHAPTER 5 | Ethics and the Environment Major Types of Land Pollution
• Toxic substances: acids, heavy metals, solvents,
pollution The undesirable and unintended pesticides, herbicides, phenols
contamination of the environment by human activity • Solid wastes: residential garbage, industrial wastes,
such as manufacturing, waste disposal, burning fossil agricultural wastes, mining wastes,
fuels, etc. • Nuclear wastes: highlevel (cesium, strontium,
plutonium), transuranic (diluted high-level wastes),
resource depletion The consumption of finite or low-level (contaminated reactor equipment, uranium
scarce resources. mine tailings)

global warming The increase in temperatures around Quick Review 4

the globe due to rising levels of greenhouse gases. Depletion of Nonrenewable Resources
• Several species have lost habitats and become
greenhouse gases Carbon dioxide, nitrous oxide, extinct
methane, and chlorofluorocarbons— gases that • Natural resources depleted at peaked rate, not
absorb and hold heat from the Sun, preventing it from exponential rate
escaping back into space, much like a greenhouse • Fossil fuel depletion: coal likely peaks in 150 years,
absorbs and holds the Sun’s heat. natural gas in 30–40 years, oil between 2010 and 2040
• Mineral depletion: copper and mercury peak in
ozone depletion The gradual breakdown of ozone gas about 2100, aluminum during 21st century, indium
in the stratosphere above us caused by the release of and antimony in about 10 years, tantalum in 20–116
chlorofluorocarbons (CFCs) into the air. years

acid rain Occurs when sulfur oxides and nitrogen ecological system An interrelated and interdependent
oxides are combined with water vapor in clouds to set of organisms and environments.
form nitric acid and sulfuric acid. These acids are then
carried down in rainfall. ecological ethics The ethical view that nonhuman
parts of the environment deserve to be preserved for
Quick Review 1 their own sake, regardless of whether this benefits
Major Types of Air Pollution human beings.
• Greenhouse gases: carbon dioxide, methane, nitrous
oxide, Quick Review 5
• Ozone depleting gases: chlorofluorocarbons The “Last Man” Argument for Ecological Ethics
• Acid rain gases: sulfur oxides • Routley asks us to imagine a man who is Earth’s last
• Airborne toxics: benzene, formaldehyde, toluene, survivor.
trichloroethylene, and 329 others • We recognize it is wrong for the last man to destroy
• Common air pollutants: carbon monoxide, sulfur all nonhumans.
oxides, nitrogen oxides, airborne lead, ozone, • So we must recognize some nonhumans have
particulates. intrinsic value apart from humans.

organic wastes Largely untreated human waste, Quick Review 6

sewage, and industrial waste from processing various Environmental Rights
food products, from the pulp and paper industry, and • Blackstone argues humans have a right to fulfill their
from animal feedlots. capacities as free and rational and a livable
environment is essential to such fulfillment.
Quick Review 2 • So humans have a right to a livable environment
Major Types of Water Pollution which is violated by practices that destroy the
• Organic wastes: human sewage, animal wastes, environment.
bacteria, oil, • Such environmental rights can lead to absolute bans
• Inorganic pollutants: salt brines, acids, phosphates, on pollution even when the costs far outweigh the
heavy metals, asbestos, PCBs, radioactive chemicals. benefits.

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private cost The cost an individual or company must precautionary principle The principle that if a practice
pay out of its own pocket to engage in a particular carries an unknown risk of catastrophic and
economic activity. irreversible consequences, but it is uncertain how
large that risk is, then the practice should be rejected
social cost The private internal costs plus the external until it is certain the risk is nonexistent or insignificant.
costs of engaging in a particular economic activity.
social ecology The environmental crises we face are
Quick Review 7 rooted in the social systems of hierarchy and
Markets and Pollution domination that characterize our society.
• Total costs of making a product include a seller’s
internal private costs and the external costs of ecofeminism Belief that the root of our ecological
pollution paid by society. crisis lies in a pattern of domination of nature that is
• A supply curve based on all costs of making a tightly linked to the social practices and institutions
product lies higher than one based only on sellers’ through which women have been subordinated to
internal private costs and the higher supply curve men.
crosses the demand curve at a lower quantity and a
higher price than the lower supply curve. Quick Review 10
• So when sellers’ costs include only private costs, too Alternative Approaches to Pollution
much is produced and price is too low (compared to • Social Ecology says to get rid of social systems of
when all costs are included), which lowers utility, and hierarchy and domination
violates rights, and justice. • Ecofeminism says change male pattern of
dominating nature and women
Quick Review 8 • Some feminists say we should extend the ethic of
Ethical Approaches to Environmental Protection care toward nature
• Ecological approach: nonhumans have intrinsic
value conservation The saving or rationing of natural
• Environmental rights approach: humans have a right resources for later uses.
to a livable environment
• Market approach: external costs violate utility, Quick Review 11
rights, and justice so they should be internalized. Arguments Against Attributing Rights to Future
Generations
internalization of the costs of pollution Absorption of • Future generations do not now exist and may never
external costs by the producer, who then takes them exist.
into account when determining the price of goods. • If future generations have rights then the present
must be sacrificed for the future.
environmental injustice The bearing of external costs • Because we do not know what interests future
of pollution largely by those who do not enjoy a net generations will have, we cannot say what rights they
benefit from the activity that produces the pollution. have.

Quick Review 9 Quick Review 12

Optimal Level of Pollution Removal in Utilitarian Conservation Based on Justice
Approach • Rawls: Leave the world no worse than we found it
• Costs of removing pollutants rise as benefits of • Care Ethic: Leave our children a world no worse than
removal fall we received
• Optimal level of removal is point where its costs • Attfield: Leave the world as productive as we found
equal its benefits it.
• But when costs and benefits are not measurable,
utilitarian approach fails Sustainability The capacity something has to
• When costs and benefits are not measurable some continue to function into the future.
use the precautionary principle, others the maximin
rule. environmental sustainability The capacity of the
natural environment to continue to meet the needs of
social audit A report of the social costs and social present generations without compromising the ability
benefits of the firm’s activities. of future generations to meet their needs from that
environment.
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Quick Review 13
Sustainability
• It is the view that we must deal with the
environment, society, and economy so that they have
the capacity to continue to meet the needs of present
generations without compromising the ability of
future generations to meet their own needs.
• Environmental sustainability, economic
sustainability, and social sustainability are
interdependent.
• Environmental sustainability implies not depleting
renewable resources faster than their replacement;
not creating more pollution than environment can
absorb; not depleting non-renewable resources faster
than we find replacements.
• Technology pessimists say science will not find
substitutes for all renewable resources so we must
conserve and reduce consumption to achieve
sustainability.
• Technology optimists say science will find such
substitutes so sustainability requires neither
conservation nor reducing consumption.

Quick Review 14
Economic Growth
• Schumacher claims we must abandon the goal of
economic growth if we are to allow future generations
to live as we do.
• Some argue we must achieve a “steady state” where
births equal deaths and production equals
consumption and these remain constant at their
lowest feasible level.
• Club of Rome computer models suggested
continued economic growth will deplete resources
and increase pollution until industrial output, food
production, and services decline, causing catastrophic
population loss sometime during the twenty-first
century.
• Troubling moral questions are raised by the
economic growth policies that have led to high rates
of energy and resource consumption in developed
nations while developing nations are left to consume
at low rates.

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BUSINESS ETHICS service life The period of time during which the
CHAPTER 6 | THE ETHICS OF CONSUMER product will function as effectively as the consumer is
PRODUCTION AND MARKETING led to expect it to function.

Quick Review 1 maintainability The ease with which the product can
Problems consumers face be repaired and kept in operating condition.
• Dangerous and risky products
• Deceptive selling practices product safety The degree of risk associated with
• Poorly constructed products using a product.
• Failure to honor warranties
• Deceptive and unpleasant advertising Quick Review 4
Moral Duties to Consumers Under Contractual
Quick Review 2 Theory
Market Approach to Consumer Protection • Duty to comply with express and implied claims of
• Claims safety is a commodity that should not be reliability, service life, maintainability, and safety
mandated by government. • Duty of disclosure
• Safety should instead be provided through the • Duty not to misrepresent
market. • Duty not to coerce.
• In a market, sellers will provide safety if consumers
demand it. Quick Review 5
• In a market, the price of safety and the amount Problems with Contractual Theory
sellers provide will be determined by the costs of • Assumes makers of products deal directly with
providing it and the value consumers place on it. consumers but they do not; however manufacturer’s
• Government intervention in consumer markets advertisements do form a kind of direct promise to
makes them unfair, inefficient, and coercive. consumers.
• Sellers can remove all their duties to buyers by
rational utility maximizer A person who has a well- getting them to agree to disclaimers of responsibility.
defined and consistent set of preferences, and who • Assumes consumer and seller meet as equals, but
knows how personal choices will affect those seller has more knowledge so consumer must rely on
preferences. the seller.

Quick Review 3 due care theory of the manufacturer’s duties to

Problems with the Market Approach consumers The view that because manufacturers are
Assumes markets are perfectly competitive but they in a more advantaged position and consumers must
are not because: rely on them, they have a duty to take special care to
• Buyers do not have adequate information when ensure that consumers’ interests are not harmed by
products are complex and information is costly and the products that they offer them.
hard to find
• Buyers are often not rational about product risk or caveat emptor Let the buyer take care
probabilities and are often inconsistent
• Many consumer markets are monopolies or caveat vendor Let the seller take care.
oligopolies. .
Quick Review 6
contract view of the business firm’s duties to its Manufacturers’ Duties in Due Care Theory
customers The view that the relationship between a • When designing product, research its risks in
business firm and its customers is essentially a conditions of use, design it so risks are minimized,
contractual relationship, and the firm’s moral duties take capacities of users into account.
to the customer are those created by this contractual • In production, use strict quality control to eliminate
relationship. defects and ensure materials and manufacturing do
not add defects or risk.
reliability The probability that a product will function • When marketing provide users with information
as the consumer is led to expect that it will function. about using product safely, warn of all dangers, do not
market to those unable to avoid risk.

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Quick Review 7 commercial advertising Communication between a
Problems with Due Care Theory seller and potential buyers that is publicly addressed
• Does not limit what producer must spend to to a mass audience and is intended to induce
eliminate risk members of this audience to buy the seller’s products.
• Does not indicate who should pay for product
injuries that cannot be foreseen production costs The costs of the resources
• Puts manufacturer in paternalistic position of consumed in producing or improving a product.
deciding how much risk is best for consumers.
selling costs The additional costs of resources that do
social costs view of the manufacturer’s duties to not go into changing the product, but are invested
consumers The view that a manufacturer should pay instead in getting people to buy the product.
the costs of any injuries caused by defects in the
product, even if the manufacturer exercised all due Quick Review 11
care in designing, making, and marketing it, and the Criticisms of Advertising Based on its Social Effects
injury could not have been foreseen. • It debases the tastes of the public; but this criticism
is not a moral criticism.
strict liability A legal doctrine that holds that • It inculcates materialistic values; but this criticism
manufacturers must bear the costs of injuries ignores the lack of evidence that advertisements can
resulting from product defects regardless of fault. change people’s values.
• Its costs are selling costs that, unlike production
Quick Review 8 costs, do not add to the utility of products and so
The Social Costs View waste resources; but this criticism ignores how
• Claims manufacturer should pay the costs of all advertising can increase consumption which is good;
injuries caused by defects in a product even if the however, studies suggest advertising does not
manufacturer exercised all due care and the injury increase consumption and anyway increasing
could not have been foreseen consumption is not necessarily good.
• Argues product injuries are external costs that • It is used by big firms to create brand loyalties which
should be internalized as a cost of bringing the let them become monopolies or oligopolies; however
product to market, this maximizes utility and this criticism ignores studies showing big monopoly or
distributes costs more fairly. oligopoly firms do not advertise more than little firms.

Quick Review 9 Quick Review 12

Criticisms of the Social Cost View Criticism of Advertising Based on its Effects on
• Unjust to manufacturers since compensatory justice Desires
says one should compensate injured parties only if the • Galbraith claimed advertising creates psychic desires
injury was foreseeable and preventable which, unlike physical desires, are pliable and
• Falsely assumes that the social cost view prevents unlimited.
accidents; instead, encourages consumer carelessness • Psychic desires are created so firms can use us to
by relieving them of responsibility for their injuries absorb their output.
• Has increased the number of successful consumer • Using us this way treats us as means and not as ends
lawsuits which imposes heavy losses on insurance and so is unethical.
companies, and makes insurance too expensive for • However, this criticism ignores studies which
many firms; however studies show only small increase suggest advertising cannot create and manipulate
in lawsuits and insurance firms remain profitable. desires; on the other hand, subliminal ads can
manipulate our desires and children’s desires can be
Quick Review 10 manipulated.
Characteristics of Advertising
• A public communication aimed at a large social
group intended to induce members of this audience
to buy the seller’s products.
• It succeeds by creating a desire for the seller’s
product or a belief that a product will satisfy a
preexisting desire.

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Quick Review 13
Deceptive Advertising Requires
• An author who (unethically) intends to make the
audience believe what he or she knows is false by
means of an intentional act or utterance.
• Media or intermediaries who communicate the false
message of the advertisement and so are also
responsible for its deceptive effects.
• An audience who is vulnerable to the deception and
who lacks the capacity to recognize the deceptive
nature of the advertisement.

right to privacy The right of persons to determine

what, to whom, and how much information about
themselves will be disclosed to other parties.

psychological privacy Privacy with respect to a

person’s inner life.

physical privacy Privacy with respect to a person’s

physical activities.

Quick Review 14
Importance of Privacy
• Protects individuals from disclosures that can
shame, can encourage interference in one’s private
life, hurt loved ones, and lead to selfincrimination.
• Enables the intimacy that develops personal
relationships, the trust and confidentiality that
underlies clientprofessional relationships, the ability
to maintain distinct social roles, and the ability to
determine how others will see us.

Quick Review 15
Balancing Right to Privacy and Business Needs
• Is the purpose of collecting information a legitimate
business need that benefits the consumer?
• Is the information that is collected relevant to the
business need?
• Is the consumer informed the information is being
collected and the purpose?
• Did the consumer consent to the information
disclosure?
• Is the information accurate?
• Is the information secure and not disclosed to
recipients or used in ways to which the consumer did
not consent?