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bus 101-exam 3


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Free market economy

Assembly line: (industrial revolution)
Increase product, increase competition

Adam Smith-wealth of nations
invisible hand and trickle down
invisible hand
competition self corrects (regulates)the market
trickle down
pursuit of financial gain benefits society
theoretical tennt of capitalism
people are good. if individuals maximize their personal wealth, they will share and society will benefit,. Individual welfare/wealth=societal wealth/welfare
problems with capitalism
uneven distribution of wealth, icnrease profit by decreasing expenses, pay workers less, greed, people are not inherentl good, industrialization=sweatshops=government regulation
sweat shops, government regulation... government intervens on behalf of stakeholders, planned economy
mixed economy
system that incorporates components of pure capitalism and a planned economy
John Mackey"conscious capitalism
today worl is complex system of interdependencies. capitalism(theory of firm) is outdated, entrepreneurs:purpose is not profit, profit=by product of interdependence of stakeholders, non-profits(good altruistic) v. corporations (max profits=selfish)
political philosophy
virtues of a free market economic system without government intervention, government hinders invisible hand
social responsbility does not belong in business
social conscience=pure capitalisnm
redistribution of wealth by government
political rather then market mechanisms to determine allocation of scarce resources
people have respnsibilities not businesses
business social responsibility helpes to strengthen the already too prevelent view that the pursuit of profits is wicked and immoral and must be controlled by external forces
CEO=agent of owner
social responsibilit is not in the best interest of the owner,corporate philanthropy=tax to shareholders, only responsibility is to maximize profit for owner(all other stakeholders are secondary_,owners deserve profit becaue they put their own money at risk
cloak of social responsibility
philanthropy that benefits a companys profit in the long run. goodwill is own self-interest, deceit/fraug
political principle underlying market mechanism:unanimity
all cooperation is voultary,no social responsibilities
political prinicple underlying political mechanism:conformity
individual must serve general social interest, if overruled, must conform, social responsibility=subversive document
stakeholder theory of firm
managerial capitalism
act in interest of stockholders
attack on managerial capitalism
legal argument AND economic argument
legal argument
law has evolved to effectively constrain the pursuit of stockholder interests at the expense of other claimants of the firm"
-caveat venditor: consumers
-Clean air and water acts: community

economic argument
invisible hand cannot work. real markets involve challenges: monopoly power, externalities, free riders, moral hazads
stakeholder theory of the firm premise
implementation of stakeholder management in the long run mitigates the need for an increased role of government intervention and regulation
role of management
ceo must mangage the relationships between different stakeholders: balance multiple clains of conflicting stakeholders, there will be times when one stakeholder benefits at the expense of another
reason for paying returns to owners is not that they own the firmm but that their support is necessary for the tfirms survival.
the functions of the law:hoebel
define relationships among society(accepted behavior), allocation of authority(restrain power), disposition of trouble cases(Set standards/protocol), maintain adaptability/oreder(redefine relationsips as conditions change)
law derives its working principle in culture
law sets ecpectations;individual to individual, group to group
the ideal of legality:selznick
legality(rule of law): necessary to have an organized collective society, retraint of offical power by rational principles of civic order, legality:how policies are made and applie, not content of rules, legality imposes envirnoment of constraint, arbitrary elements should be minimized in legal norms to maintain fair decision making
law enforcement
judically and administrively
voluntary compliance
laws depend on citizens complying
law sets the floor to behavior,not the ceiling
legal doesnt equal right, sets a social standard
the morality that makes laws possible:fuller
society needs laws that are consistant and understandable, creating/maintaing a system of law may fail in the following ways: 1. failure to achieve rules at all, failure to publicize rules, use of retroactive laws,failure to make rules understanable, contradictory rules,rules that require conduct beyond ones control, changing rules too frequently, failure to administer rules as announces
standards set by the government and society in the form of either legislation or custom
judicuary(court systems)
branch of government charged with settleing disputes among parties through the application laws: Trial courts, ppellate courts, us supreme courts

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