ETHICS IN THE MARKET – Theories and Definitions Tuesday, Dec 2 2008 

PERFECT COMPETITION:

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

PURE MONOPOLY:

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

OLIGOPOLY:

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

MARKET:

Any forum in which people come together for the purpose of exchanging ownership of goods or money.

EQUILIBRIUM POINT:

The point at which the amount of goods buyers want to buy exactly equals the amount of goods sellers want to sell, and at which the highest price buyers are willing to pay exactly equals the lowest prices sellers are willing to take.

DEMAND CURVE:

A line on a graph indicating the most that customers would be willing to pay for a unit of some product when they buy different quantities of those products.

SUPPLY CURVE:

A line on a graph indicating the prices producers must charge to cover the average costs to supplying a given amount of a commodity.

PRINCIPLE OF DIMINISHING MARGINAL UTILITY:

Each additional item a person consumes is less satisfying than each of the earlier items the person consumed.

PRINCIPLE OF INCREASING MARGINAL COSTS:

After a certain point, each additional item a seller produces costs more to produce than earlier items.

POINT OF EQUILIBRIUM:

The point at which the supply and demand curves meet, so amount buyers want to buy equals amount suppliers want to sell and price buyers are willing to pay equals price sellers are willing to take.

Perfectly Competitive Free Markets are characterized by the following 7 features:

  1. There are numerous buyers and sellers, none of whom has a substantial share of the market.
  2. All buyers and sellers can freely and immediately enter or leave the market.
  3. Every buyer and seller has full and perfect knowledge of what every other buyer and seller is doing, including knowledge of prices, quantities, and quality of all goods being bought and sold.
  4. The goods being sold in the market are so similar to each other that no one cares from which each buys or sells.
  5. The costs and benefits of producing or using the goods being exchanged are borne entirely by those buying or selling the goods and not by any other external parties.
  6. All buyers and sellers are utility maximizers. Each tries to get as much as possible for as little as possible.
  7. No external parties(such as government) regulate the price, quantity, or quality of any of the goods being bought and sold in the market.

MORAL OUTCOMES OF PERFECTLY COMPETITIVE MARKETS:

  • Achieve a certain kind of justice.
  • Satisfy a certain version of utilitarianism.
  • Respect certain kinds of moral rights.

MONOPOLY MARKET CHARACTERISTICS:

  • One Seller
  • High Entry Barriers
  • Quantity below Equilibrium
  • Prices above equilibrium and Supply Curve
  • Can extract monopoly profit.

OLIGOPOLISTIC COMPETITION:

IMPERFECTLY COMPETITIVE MARKETS:

Markets that lie somewhere between the two extremes of the perfectly competitive market with innumerable sellers and the pure monopoly market with only one seller.

HIGHLY CONCENTRATED MARKETS:

Oligopoly markets that are determined by a few large firms.

HORIZONTAL MERGER:

The unification of two or more companies that were formerly competing in the same line of Business.

PRICE FIXING:

An agreement between firms to set their prices at artificially high levels.

MANIPULATION OF SUPPLY:

When firms in an oligopoly industry agree to limit their production so that prices rise to levels higher than those that would result from free competition.

EXCLUSIVE DEALING ARRANGEMENTS:

When a firm sells to a retailer on condition that the retailer will not purchase any products from other companies and/or will not sell outside of a certain geographical area.

TYING ARRANGEMENTS:

When a firm sells a buyer a certain good only on condition that the buyer agrees to purchase certain other goods from the firm.

RETAIL PRICE MAINTENANCE AGREEMENTS:

A manufacturer sells to retailers only on condition that they agree to charge the same set retail prices for its goods.

PRICE DISCRIMINATION:

To charge different prices to different buyers for identical goods or services.

UNETHICAL PRACTICES IN OLIGOPOLY INDUSTRIES:

  • Price – Fixing
  • Manipulation of supply
  • Exclusive dealing arrangements
  • Tying Arrangements
  • Retail Price Maintenance Agreements
  • Price Discrimination

PRICE LEADER:

  • The firm recognized as the industry leader in oligopoly industries for the purpose of setting prices based on levels announced by that.

TRUST:

An alliance of previously competitive oligopolists formed to take advantages of monopoly powers.

MAIN VIEWS OF OLIGOPOLY POWER:

  • Do-Nothing View
  • Anti trust View
  • Regulation View

THE BUSINESS SYSTEM – Markets, Government and International Trade Saturday, Nov 29 2008 

ECONOMIC SYSTEM:

The system a society uses to provide the goods and services it needs to survive and flourish.

GLOBALIZATION:

The process by which the economic and social systems of nations are connected together so that goods, services, capital, and knowledge move freely between nations.

TRADITION BASED SOCIETIES:

Societies that rely on traditional communal roles and customs to carry out basic economic tasks.

In Locke’s State of Nature:

  • All are free and equal
  • Each person owns his body and labour, and whatever he mixes his labour into
  • People agree to form a government to protect their right to freedom and property

Lockean Rights:

  • The right to life, liberty and property.

Weaknesses of Lockean Rights:

  • Assumption that individuals have neutral rights
  • Conflict between positive and negative rights
  • Conflict between Lockean rights and principles of Justice.
  • Locke’s individualistic assumptions

INVISIBLE HAND : Arguments of Adam Smith

  • According to Adam Smith, the market competition that drives self interested individuals to act in ways that serve society.
  • Market Competition ensures that the pursuit of self interest in markets advances of public’s welfare.
  • Govenment interference in markets does not advance the public’s welfare.

Criticisms of Smith’s Argument:

  • Rests on unrealistic assumptions
  • False assumption that all relevant costs are paid by manufacturer
  • False assumption that human beings are solely motivated by self interested desire for profit.
  • Some degree of economic planning is possible and desirable.
  • Keynes’s claim that government can affect unemployment.

SAY’S LAW:

In an economy all available resources are used and demand always expands to absorb the supply of commodities made from them.

AGGREGATE DEMAND:

According to John Maynard Keynes, the sum of the demand of the 3 sectors of the econonmy; households,businesses and government.

KEYNESIAN ECONOMIES:

The theory of John Maynard Keynes that free markets alone are not necessarily the most efficient means for co-ordinating the use of society’s resources.

SOCIAL DARWINISM:

Belief that economic competition produces human progress.

SURVIVAL OF THE FITTEST:

Charles Darwin’s term for the process of natural selection.

NATURALISTIC FALLACY:

The assumption that whatever happens naturally is always for the best.

ABSOLUTE ADVANTAGE:

A situation where the production costs (costs in terms of the resoueces consumed in producing the good) of making a commodity are lower for one country than for another.

COMPARATIVE ADVANTAGE:

A situation where the opportunity costs (costs in terms of other goods given up) of making a commodity are lower for one country than for another.

FREE TRADE:

  • Advocated by Smith with the idea of Absolut advantage.
  • Advocated by Ricardo with idea of Comparative Advantage.
  • Favours Gloablization.

Difficulties in Applying Ricardo’s Theory Today:

  • Easy movement of capital by companies
  • False assumption that a country’s prodcution costs are constant.
  • Influence of International rule setters.

MEANS OF PRODUCTION:

The buildings, machinery, land and raw materials used in the production of goods and services.

ALIENATION:

In Marx’s view not allowing the lower working classes to develop their productive potential, satisy their real human needs, or form satisfying human relationships.

ECONOMIC SUBSTRUCTURE:

The materials and social controls that society uses to produce its economic goods.

SOCIAL SUPERSTRUCTURE:

A society’s government and its populare ideologies.

FORCES OF PRODUCTION:

The materials- land, labour,natural resources,machinery,energy,technology used in production.

RELATIONS OF PRODUCTION:

The social controls used in producing goods i.e. the social controls by which society organizes and controls its workers.

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.

MARX’S PRINCIPLE Claims of Injustice in Capitalism:

  • Exploitation of workers whose “surplus” is taken by owners as “profit”.
  • Alienation of workers from product, work,self and others.
  • Subordination of government to interests of ruling economic class.
  • Immiseration of Workers.

IMMISERATION:

The combined effects of increased concentration, cyclic crises, rising unemployment, decliining relative compensation.

INTELLECTUAL PROPERTY:

Property that consists of an abstract and nonphysical object.

COPYRIGHT:

A grant that indicated that a particular expression of an idea is the private property of an individual or a company.