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31 Cards in this Set
- Front
- Back
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Economics and Engineering
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1. Both offer technical methods
2. Utilize precise methods 3. Are value free and objectives However, economics has not acquired the same stature as science and engineering, economic laws are not as widely accepted. |
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Homo-Economics and Human Behavior Assumptions
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1. Humans are self-interested
2. humans are rational, hold perfect information, and markets are competitive 3. humans learn from their mistakes and change their behavior if a choice fails to improve their well-being. However, perfect information is very rare. |
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Macro Economics
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- The "BIG picture"
- Keynsian and Chicago schools - Focus on national goals - interested in the economy as a whole |
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Micro Economics
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- details of the "BIG picture"
- Austrian and neoclassic schools - focus on economic actors (firms, government agencies, individuals) - interest in the behaviors of individual economic actors |
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Adam Smith
(1723-1790) |
Classical Economist
"Wealth of Nations" (1776) - Contributed the invisible hand and supply & demand -Supply and demand has a utilitarian aspect -Supply is a function of demand allowing firms to meet our needs -Motivating factors that mold human behavior 1. Self-interest 2. Sympathy 3. desire to be free 4. sense of propriety (want of goods and property) 5. a habit of labor (people want to work) 6. The propriety to truck, barter and exchange (trading) |
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David Ricardo
(1772-1823) |
"The Principle of Political Economy and Taxation" (1812)- Contributed diminishing returns and comparative advantage
-idea of inflation explained to the Bank of England - |
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Thomas Mathus
(1766-1834) |
"Essay on the Principle of Population" (1798) - Contributed the theory of population
-influenced Darwin and the theory of Natural Selection -An increased population will exhaust resources |
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Assumptions of Classic Economics
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1. Government interference in economic life is "inappropriate and unnecessary"
-Savas proved that the marketplace is more efficient than the government in producing goods and services because the government must abide by more rules and regulations 2. individuals have freedom to pursue their own self-interest, own private property and be free to risk it. 3. Market discipline private economic activity -if a company is being unfair in competition the consumer can choose not to buy 4. the proper measure of corporate performance is profit markets make their primary contributions by society creating wealth, jobs, taxes and goods and services |
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Limitations of Classical Economic Thought
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1. Practical (Velasquez)
-Exclusion of segments of society (not everyone participates in the marketplace) -injurious hazards (ex. pharmaceuticals) -absence of competitive markets (monopolies 2. Theoretical (Hosmer) -the greatest good for the greatest number (someone has to be stepped on) -people treated as a means to an end (instrument of the shareholders) 3. Combined (Melendez) a) Cost Effective Analysis -most effective way to go about something knowing that youre doing something for sure -ultimate end is worker safety b) Supply/Demand and "Dependence effect" -supply is a function of demand -the market has begun to flip this (unethical) |
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Moral Responsibility
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-Recognition and action after seeing/hearing about unethical behavior
-No turning a blind eye |
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Moral Reasoning
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-Apply critical thought, make ethical decision
-must be able to apply reason to find problem but must also get towards fixing it (character) |
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Moral Character
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-Taking action (character) after recognizing a problem (reasoning)
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Trust : Speed and Cost
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-the core of commitment, cooperation, innovation, etc.
-one of the basics that is necessary for all life |
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Business Ethics and Financial Performance
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1. Employee commitment
-a safe working environment, treating employees well, employees that treat the firm well (productivity) 2. Providing a competitive salary 3. Fulfilling contractual obligations towards employees 4. Investor loyalty -Firms have higher return rates when they act ethically 5. Profits -Ethical treatment of employees leads to higher productivity from your employees = higher profits, also keeps employees at the firm because they enjoy being treated well -Issues that worsen customer satisfaction lose business because consumers have choices |
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Corporate Social Responsibility (CSR)
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-Liability
-Accountability -Attention to and promotion of the welfare and goodwill of all stakeholders, companies that demonstrates CSR have a competitive advantage |
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Domini 400 Social Index
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1. Exclusionary Screen- if you are into alcohol, gaming, tobacco, you are out of this index
2. Qualitative Screen- how the company distributes their money to philanthropic events etc |
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CRO's 100 Best Criteria- large caped US headquartered public firms
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-climate change
-employee relations -environment -governance -human rights -lobbying -philanthropy |
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Triple Bottom Line (3BL)
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1. Planet
2. People 3. Profit |
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Ford Case
(1919) |
The first case on CSR
-didn't pay out dividends -courtside with ford and not shareholders |
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Environmental Degradation
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18th and 19th Centuries
-Industrial revolution -Businesses said it was a burden to economic growth -People gave warnings about it -Pesticides, waste, etc. were not considered a problem Jared Diamond (Collapse, 2004): When looking at the Industrial Revolution, it allowed us to degrade the environment at a rate and to an extent that had never been seen prior. |
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Economic Growth
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Economist: William Baxter
1. Circular Flow : If poverty, economic growth will save the day, it is the solution to all problems 2. Take-make-waste model : Use resources to make into something and then discard. -Optimal level of pollution, we should achieve safe air, water, etc. |
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Primary Concerns with Economic Growth Model
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1. Externalities (costs to future generations)
2. Lack of markets to create price for social goods (not everything has a market) 3. Individual decisions vs. group consequences |
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Sustainability Development
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Economist: Herman Daly
1. Life Cycle responsibility: firms are responsible for the entire life of their products. 2. Circular flow vs. Biophysical limit models -circular flow based off the theory of unlimited supplies and infinite growth -Biophysical Limits Model is a balance (earth can absorb a limited amount of waste) |
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Why do businesses pursue Sustainable Development?
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1. Self-interest
2. Prudent long-term strategy; treat resources like capital, they wont last forever 3. Unmet market potential among the worlds' developing countries -the base of the economic pyramid (C.K. Prahaland) find a way to sell to the poor -Microfinance (Muhammed Yunas) tap into the paris market through small loans to aid startup 4. Cost savings, using alternatives for architecture, energy, etc. 5. Competitive advantage, get ahead of the government in regards to regulations 6. Risk management strategy |
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Describe Homo economicus and explain what is wrong with this characteristic of man?
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-Neoclassical theory based on 3 assumptions
1. Humans are self interested, false 2. Humans are rational, hold perfect truth, markets are competitive. -Not always rational, not always forthcoming, and monopolies exist. 3. Humans learn from mistakes; humans can die from a mistake thus are not given the opportunity to learn from it. |
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Differentiate between benefit-cost and cost-effective analysis.
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Cost Effective Analysis: End is assumed and we try to find a cost effective means to that end.
Benefit Cost Analysis: Weigh the costs to determine if it is worth attempting to reach the end. |
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Define microeconomic theory and explain two "practical", "theoretical" and "combined" shortcomings of microeconomic theory.
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A focus on the DETAILS of the big picture.
Practical limitations: 1. exclusion of segments of society 2. injurious hazards Theoretical Limitations 1. the greatest good for the greatest number 2. people treated as a means to an end Combined Shortcomings 1. cost effective analysis 2. supply/demand and dependence effect |
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List and explain the four benefits of business ethics. Which one do you believe is most important?
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1. employee commitment
2. investor loyalty 3. customer satisfaction 4. profits |
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Who is Amy Domini? Explain the Domini 400 "exclusionary" and "qualitative" screens.
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The creator of the Domini 400 Social Index. The index selects firms based on social and environmental standards.
Exclusionary: companies who sell harmful products, drugs, alcohol, gambling, prostitution, and defense contractors. Qualitative: weed out firms that don't meet their social and environmental standards; distributing money to philanthropies, high employee and customer satisfaction. |
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Explain six reasons why businesses should pursue sustainable development.
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1. self interest
2. prudent long term strategy 3. unmet market potential 4. cost saving 5. competitive advantage 6. risk management strategy |
