Business ethics

Business ethicsPart 1 motives and functions of a business▪The goal pf a business▪The resources used to produceproducts or services▪The key stakeholders in a business▪The key types of business decisions The goal pf a businessBusiness are established to serve the needs of consumers by owners who seek to make profits.▪Where are the profits come from?▪The businesses are created to provideproducts and services (products orservice or products& services)▪The difference between the revenueand the expenses is the profit(or earnings) generated by thebusiness.▪You can increase your profits by eitherincreasing your revenue or reduce your expense.▪The profits that you earn from your new business are dependent on threeconditions.▪First, there needs to be a demand forthe products and services you offer.▪Second, you need to attract customers.▪Third, to earn high profits, you need tokeep your expenses low.The resources used to produce products or services▪Natural resources▪Human resources▪Capital▪Entrepreneurship (Entrepreneurshipinvolves the creation of business ideas and the willingness to accept risk.Entrepreneurs attempt to identifybusiness opportunities. )The key stakeholders in a business▪Owners▪Creditors▪Employees▪Suppliers▪CustomersThe characteristics of most business owners▪(1)some people are motivated by thechance to earn a large income .▪(2)some desire to e their own bossrather than work for someone else.▪(3)others enjoy the challenge or theprestige associated with owning abusiness.▪Stockholders: investors who becomepartial owners of firms by purchasingthe firm’s stock. The funds receivedby a firm that issues stock can be used to expand the business.▪The firm should be able to provide thestockholders with a decent return ontheir investment.▪Creditors: financial institutions orindividuals who provide loans.▪The firm must convince the creditorsthat will be sufficiently profitable tomake the interest and principalpayments.▪Employees▪Those employees who are responsible for managing job assignments of otheremployees and making key businessdecisions are called managers.▪The goal of the manager is tomaximize the firm’s value.▪Suppliers▪Firms can not complete the production process if they can’t obtain thematerials.▪Customers▪Firms rely on customers to purchasethe products or service they produce. The business environment▪Social environment▪Industry environment▪Economic environment▪Global environmentSocial environment▪The Social environment includesdemographics and consumerpreferences.▪Demographics represents thecharacteristics of the human population or specific segments of the population▪Demographics and consumerpreferences change over time. they will affect the demand for the productsproduced.Industry environment▪The Industry environment representsthe conditions within the firm’sindustry to which the firms is exposed.The conditions in each industry varyaccording to the demand and thecompetition.Economic environment▪When the economy is strong,employment is high, andcompensation paid to the employee isalso high. since people have relativelygood income under these conditions,they purchase a large amount ofproducts. the firms benefit from thelarge demand.▪When the economy is weak, the firmswill lay off their employee and can’tafford to pay high wages. since peoplehave relatively low income under these conditions, they purchase a relativelysmall amount of products. the firmsare affected .Global environment▪Some firms rely on foreign countries for some of their suppliers or sell theirproducts in various countries. Theymay even establish subsidiaries inforeign countries where they produceproducts and sell them.▪It must be aware of theglobal environment because it mayface foreign competition when it sellsproducts locally.▪Furthermore, global economicconditions can affect local economicconditions.Key types of business decisions▪The key types of decisions involved inrunning a business can be classified as management, marketing and financedecisions.▪Management decisions determine how the firm’s resource are allocated.Marketing decisions the products to besold, along with the pricing, distribution, and promotion of the products. Finance decisions determine how the firmobtain and invest the funds.▪Business decisions are improved as aresult of accounting and informationsystems. Accounting is used to monitorperformance and detect inefficient uses of resources in order to improvebusiness decisions. Informationsystems provide the firm’semployees with information that enable them to improve business decisions. Part 2 business ethics and social responsibility▪Responsibility to their customers▪Responsibility to their employees▪Responsibility to their stockholders▪Responsibility to their creditors▪Responsibility to the environment▪Responsibility to their communities Responsibility to their customers▪Responsible production practices(products should be produced in a way that ensure customer safety. productsshould carry proper warning labels toprevent accidents that could result from misuse.▪Responsible sales practices(sell their products without misleading the customers)▪The role of governmentThe government attempts to ensure that firms fulfill their responsibility to their customers through various laws on product safety, advertising and industry competition.Responsibility to their employees▪Firms also have a responsibility totheir employees to ensure theirsafety, proper treatment and equalopportunity.▪Employee safety (firms mustensure the workplace is safe andcreate a safe working environmentprevent injuries and improve themorale of their employees)▪Proper treatment▪Two key issues concerning thetreatment of employee are diversity and the prevention of sexualharassment.▪Diversity (different gender and race, political beliefs, variousbackground)Equal opportunity▪Employees who apply for a position ata firm should not be subjected todiscrimination because of their national origin, race, gender or religion.How the firms ensure responsibility to employees▪They can satisfy their responsibility toemployees by enforcing safetyguidelines, offering seminars ondiversity, and establishing a grievanceprocedure that allow the employeesreport any complaints.▪Firms have the responsibility to satisfy the owners (or stockholders) whoprovided funds. They attempt to ensure that managers make decisions that are in best interests of stockholders.▪employee compensation may bedirectly tied to the firm’s performance,which can resolve some conflicts ofinterest but create others. Some topmanagers have later reported anartificially high performance level for the firm in a period when they want to selltheir stock at a relatively high price.Rathe r than improving the firm’sperformance, these managersmanipulated the financial reporting toexaggerate the firm’s performance. responsibility to creditors▪Firms have a responsibility to meettheir financial obligations to theircreditors. This responsibility includesnot only paying their debts but also notsupplying creditors with misleadinginformation about their condition. responsibility to the environment▪Firms have a responsibility to maintaina clean environment when operatingtheir businesses. however, they incurexpense when attempting to fulfill theirenvironmental responsibility .▪Air pollution :fuel, steel, automobile use, increase the amount of carbon dioxidein the air.▪Land pollution: toxic waste responsibility to the community▪Firms have a social responsibility tothe local communities where theyattract customers and employees.They provide donations and otherbenefits to these communities.Part 4 assessing economic conditions▪How the economic growth affects business performance▪How inflation affects business performance▪How interest rates affects business performance▪How market prices are determined▪How the government influences economic conditionsImpact of economic growth on business performance▪Economic growth represents thechange in the general level ofeconomic activity.▪Economic growth affects a firm’sperformance because it can affect theincome levels of consumers andtherefore affects the demand for afirm’s products.▪When the economy is strong, thedemand for a firm’s product is strong,and its profits are relatively high. Whenthe economy is weak, the demand fora firm’s product is low, and its profitsare relatively low.▪The impact of a strong (weak)economy spreads across firms▪Weak economic growththe products they produced than theysell the firms close the production plants, lay off the employees cut back the plans for expansion▪Indicators of economic growth▪Aggregate expenditures: the totalamount of expenditures in theeconomy▪GDP( gross domestic product):the total market value of all finalproduct and services produced▪Unemployment level▪The four different types ofunemployment are as follows:▪Frictional unemployment: representspeople who are between jobs. Thatis ,their unemployment status aretemporary, as they are likely to findemployment soon.▪Seasonal unemployment: representspeople whose services are not needed during some seasons.▪Cyclical unemployment: representspeople are unemployed because ofpoor economic conditions.▪Structural unemployment: represents people who are unemployed becausethey do not have adequate skills.▪Many other indicators of economic growth, such as the industrialproduction index, new housing starts, and the personal income level.▪Variation in the sensitivity to economic growth▪Some firms are more sensitive than others to economic conditions becausethe demand for their product is more sensitive to such conditions. For example, the demand for the food is not very sensitive to economic conditions, the demand for new automobile is more sensitive to economic conditions.How inflation affects business performance▪Inflation is the increase in the general level of prices of products and servicesover a specified period of time. The inflation rate can be estimated by measuring the percentage change in the consumer price index, which indicate the prices on a wide variety of consumer products such as grocery products, housing, gasoline, medical services, and electricity.▪Inflation can affect a firm’s operatingexpenses from producing products byincreasing the cost of supplies andmaterials. Wages can also be affectedby inflation.▪Types of inflation▪Cost- push inflation: the situation whenhigher prices charged by firms arecaused by higher costs.▪Demand-push inflation: the situationwhen prices of products and servicesare pulled up because of strongconsumer.▪Inflation affects a firm’s performancebecause it can affect the revenue orexpense of a firm. When the inflation ishigh, firms incur higher costs ofproduction. if they pass on higher costto consumer by raising prices, theconsumer may reduce their demandfor the products, and revenue(and profits) will decline. If the firms donot pass on the higher cost, theirrevenue may not be affected. However, since their expenses are higher, theirproducts will decline.How interest rates affects business performance▪Interest rates determines the cost ofborrowing money.▪Interest rates affects a firm’sperformance because they can affectthe revenue or expense of a firm. when interest rates increase, the cost ofborrowing money increases. Therefore, its expense increase, and its profitsmay decline. in addition, high interestrates can discourage consumers frombuying particular products that theynormally purchase with credit, becausethe loan payment would be too high.The firms that offer these productsexperience a decline in revenue wheninterest rates are high. Therefore, theytend to experience lower profits underthese conditions.How market prices are determined▪The prices of products and suppliesare influenced by demand and supplyconditions.▪The demand for a product can beshown with a demand schedule, aschedule that indicates the quantity ofthe product that would be demanded at each possible price. The demandschedule curve shows that as theprices decreases, the quantitydemanded increases.▪The supply of a product can be shownwith a supply schedule, a schedule that indicates the quantity of the productthat would be supplied by firms at each possible price. The supply schedule curve shows that as the prices increases, the quantity supplied increases.▪Interaction of demand and supply represents the equilibrium price is▪The interaction of the demand schedule and supply scheduledetermines the price. when the prices of the products at a relatively high prices, the quantity supplied by firms exceeds the quantity demanded by customers, resulting in a so-called surplus.▪when the prices of the products at a relatively low prices, the quantitysupplied by firms be less than thequantity demanded by customers,resulting in a so-called shortage.▪The equilibrium price :the price atwhich the quantity of a productsupplied by the firms equals thequantity of the product demanded bycustomers▪At any prices above the equilibriumprice, the firms will be unable to sell the products they produce, resulting asurplus, therefore they would need toreduce their price to eliminate thesurplus.▪At any prices below the equilibriumprice, the firms will not produce asufficient quantity products to satisfy all the customers willing to pay that price,the firm can increase their price tocorrect the shortage.Factors that influence market prices▪Consumer incomewhen consumer’s income rises, they may demand a larger quantity of specific products and services. Conversely, when consumer’s income level declines, they may demand a smaller quantity of specific products and services.Consumer preferenceAs Consumer preference for a particular product change, the quantity of thatproduct demanded by consumers may change.Production expensesHow the government influences economic conditionsThe government can influence the economic conditions by implementing monetary and fiscal policy.Monetary policy refers to demand deposits (checking accounts), currency held by the public, and traveler’s checks.Its monetary policy affects the amount of funds available at commercial banks and other financial institutions and therefore affects interest rates.▪Fiscal policy involves decisions on how the government should set tax ratessuch as personal income tax rates,corporate taxes, excise taxes andspend money such as budget deficit.▪budget deficit represents the situationwhen the amount of governmentspending exceeds the amount of taxes and other revenue received by thegovernmentDilemma of the government▪The government faces a dilemmawhen attempting to influence economic growth.▪If it can maintain a low rate of economic growth, it can prevent inflationarypressure caused by an excessivedemand for products. A restrictivemonetary or fiscal policy may be usedfor this purpose. Although restrictivemonetary or fiscal policy may keepinflation low, a critical tradeoff involved.The unemployment rate may be higherwhen the economy is stagnant. Thegovernment can use a more simulativepolicy to boost economic growth.Although these policies increaseeconomic growth, they may also causehigher inflation.The standard of morality▪psychological egoism▪Its basic characteristics is self-centered, taking personal interests as itsthoughts and behavior principle andmoral evaluation standards.▪Utilitarianism▪The Classic Utilitarianism isrepresented by Bentham and Mill, thelegitimate of the behavior is that thequantity of happiness it bring to therelevant parties.▪Deontology▪Kantian"s deontology▪As a kind of moral law of behavior, itmust comply with good will, mustconform to the common law, must takepeople as the ultimate goal to treat.。