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Chapter 2
Ethical Decision Making
CHAPTER SUMMARY
Ethical decision making in business is often difficult and complex. Some situations are
easily
handled because what one ought to do or what is right and wrong are evident.
Those
situations that give us pause or produce moral anguish require careful thought
and
ultimately an ability to engage in ethical reasoning. This chapter contributes to an
understanding of ethical decision making by offering a division of business ethics into two
parts: an ethics of the market and an ethics of roles and relationships, including firms. In
business, we deal with some parties purely as market actors who are on the other side of a
market transaction or exchange. For such market activity, certain moral rules or standards
apply.
These relationships are governed by professional ethics, a prime example being the legal
profession. In addition to the law, an attorney must follow professional codes of ethics
established by the state bar and/or professional association he or she belongs to. These codes can
impose a greater obligation to act in the best interests of the client. For example, the attorney-
client relationship imposes on the attorney a duty to avoid conflicts of interests, to protect client
property, and to closely guard confidential information. Other professional relationships
involving business dealings can also take the form of an agency. These relationships are built on
trust and confidence so the principal’s interests must be protected. The agent owes the principal a
duty of loyalty to act in the principal’s best interest in all business dealings involving the agency.
When we attempt to think through the ethical issues that arise in business, we are engaging
in ethical reasoning, which may be conducted on different levels. Ethical theories, which are
presented in the next chapter, can guide ethical reasoning on the highest level by providing
2.1: Recognize the features of the market system, the ethics of market transactions, and
the problems created by imperfect market conditions
2.2: Identify the duties and obligations associated with fundamental business roles and
relationships in markets and firms
2.3: Describe the philosophical and psychological approaches to ethical reasoning and
the principles that constitute a moral framework for business conduct
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Copyright © 2017 Pearson Education, Inc. All rights reserved.
SUGGESTED DISCUSSION PROMPTS
1.
3.
In what ways do ethical considerations work against perfect operation of a market
1.
A market economy is based fundamentally on ____.
A.
ethical motivation s
B.
the profit motive
C.
human welfare
D.
manufacturing
2.1: Recognize the features of the market system, the ethics of market transactions, and
the problems created by imperfect market conditions
Difficulty Level: Easy
Skill Level: Understanding
2.
A market with perfect competition would require .
A.
agents to not be rational
B.
that there be no contracts
C.
that ethics not be necessary
D.
ethical guidelines to be legally codified
Difficulty Level: Easy
Skill Level: Understanding
3.
Fraud is unethical because ______.
A.
all parties must have access to pertinent information
B.
no one may be permitted to profit too much
C.
market economies require freedom of action
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D.
the market requires everyone to further their own interests
Difficulty Level: Easy
Skill Level: Understanding
4.
The difference between
Homo economicus
and actual people is that .
A.
Homo economicus
is capable of making any decision
B.
Homo economicus
pursues many different interests
C.
actual people pursue their own self-interest
D.
actual people are less than perfectly rational
Difficulty Level: Moderate
Skill Level: Analysis
5.
A market economy alone cannot sustain public goods because .
A.
no one would want to take advantage of public goods
B.
people would be free riders if they could be
C.
people would try to sell each other public goods
D.
participants in a market economy are imperfectly rational
Difficulty Level: Moderate
Skill Level: Application
6.
Market outcomes lead to unequal outcomes mainly because ______.
A.
it involves random processes
B.
participants have differing levels of skill
C.
free markets are inherently unjust
D.
there is government interference
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Copyright © 2017 Pearson Education, Inc. All rights reserved.
Topic/Concept: Market Ethics
Difficulty Level: Moderate
Skill Level: Analysis
7.
A fiduciary has the special responsibility to _________.
A.
care for another’s financial interests
B.
sell goods as efficiently as possible
C.
provide as much information as possible
D.
take a professional interest in another’s success
Difficulty Level: Easy
Skill Level: Understanding
8.
Professions have a contract with society whereby they _____ in exchange for
sharing the many benefits of their specialized knowledge.
A.
submit to total government regulation
B.
relinquish control over their work
C.
forgo licensing requirements
D.
are granted self-regulation
Difficulty Level: Easy
Skill Level: Understanding
9.
From a traditional economic point of view, a firm was viewed as _____ which
sought to maximize its profits.
A.
a combination of markets and relationships
B.
a series of relationships, roles, and markets
C.
a moral actor
D.
a market actor
Difficulty Level: Easy
Skill Level: Understanding
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10.
The ethical concept of dignity most centrally involves .
A.
treating all persons equally
B.
disclosing all information that is needed by others
C.
recognizing the intrinsic value of persons or other entities
D.
behaving with high standards of virtue
Difficulty Level: Easy
Skill Level: Understanding
Essay Questions
1.
What are the basic components of a market system, and what assumptions are made
2.1: Recognize the features of the market system, the ethics of market transactions, and
the problems created by imperfect market conditions
Difficulty Level: Moderate
Skill Level: Application
2.
What is the difference between a fiduciary and an agent? What special
Difficulty Level: Moderate
Skill Level: Analysis
4. What are some basic questions that should be asked when making a decision that poses
an ethical dilemma?
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2.3: Describe the philosophical and psychological approaches to ethical reasoning and
the principles that constitute a moral framework for business conduct
Difficulty Level: Moderate
Skill Level: Application
Difficulty Level: Easy