IIBM Institute of Business Management
Examination Paper
Business Ethics
Section-A

Part One:
Multiple Choices:
1. (a) Information Technology

2. (a) Equal distribution of all benefits & burdens on peoples

3. (c) Retributive Justice

4. (b) Free Markets

5. (d) Historical Materialism

6. (a) Pure Monopoly

7. (a) Highly concentrated Markets

8. (b) Chlorofluorocarbons

9. (b) Market Cost

10. (c) Both (a) and (b)

Part Two:
1.
Definition: Mineral depletion is the ratio of the value of the stock of mineral resources to the remaining reserve lifetime (capped at 25 years). It covers tin, gold, lead, zinc, iron, copper, nickel, silver, bauxite, and phosphate.
At first glance, sustainability and mineral resource development appear to be in conflict. Mining depletes finite resources and in a strict sense, therefore, is inherently unsustainable. For instance, there is only a finite amount of copper in the earth’s crust, and each unit of copper extracted increases the fraction of the total copper resource base that is in use. Thus, it can be argued that if we continue to mine we will eventually exhaust the available supply of minerals.
This perspective, however, ignores the dynamics of mineral supplies. In practice the non-renewable character of minerals may be less constraining than it might seem. Five factors make the benefits from mining much more sustainable than they initially appear to be. First, through the process of exploration and development, mining companies continually reinvigorate, augment, or “sustain” their reserves. Current reserves represent only a small portion of the mineral resources remaining in the earth’s crust. Exploration and development lead to the discovery and proving up of previously unknown mineral deposits and—perhaps just as important—additional reserves at existing mines and known deposits. Technological improvements in exploration increase the discovery rate of mineral deposits and at the same time reduce discovery costs. Predictive models for massive sulfide deposits, for example, allow targeting of completely buried deposits by using the combination of structural projections and favorable stratigraphic horizons in volcanic rocks.

2.
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition and lead to higher costs for consumers. Alternatively, oligopolies can see fierce competition because competitors can realize large gains and losses at each other's expense. In such oligopolies, outcomes for consumers can often be favorable.
Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence and are influenced by the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants.
Oligopoly is a common market form where a small number of firms are in competition. As a quantitative description of oligopoly, the four-firm [concentration ratio] is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage. For example, as of fourth quarter 2008, Verizon, AT&T, Sprint, and T-Mobile together control 89% of the US cellular phone market.
Oligopolistic competition can give rise to a wide range of different outcomes. In some situations, the firms may employ restrictive trade practices (collusion, market sharing etc.) to raise prices and restrict production in much the same way as a monopoly. Where there is a formal agreement for such collusion, this is known as a cartel. A primary example of such a cartel is OPEC which has a profound influence on the international price of oil.
Firms often collude in an attempt to stabilize unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be actual communication between companies)–for example, in some industries there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership.
In other situations, competition between sellers in an oligopoly can be fierce, with relatively low prices and high production. This could lead to an efficient outcome approaching perfect competition. The competition in an oligopoly can be greater when there are more firms in an industry than if, for example, the firms were only regionally based and did not compete directly with each other.
Thus the welfare analysis of oligopolies is sensitive to the parameter values used to define the market's structure. In particular, the level of dead weight loss is hard to measure. The study of product differentiation indicates that oligopolies might also create excessive levels of differentiation in order to stifle competition.
Oligopoly theory makes heavy use of game theory to model the behavior of oligopolies: * Stackelberg's duopoly. In this model the firms move sequentially (see Stackelberg competition). * Cournot's duopoly. In this model the firms simultaneously choose quantities (see Cournot competition). * Bertrand's oligopoly. In this model the firms simultaneously choose prices (see Bertrand competition). * Characteristics * Profit maximization conditions: An oligopoly maximizes profits by producing where marginal revenue equals marginal costs. * Ability to set price: Oligopolies are price setters rather than price takers. * Entry and exit: Barriers to entry are high. The most important barriers are economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy nascent firms. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market. * Number of firms: "Few" – a "handful" of sellers. There are so few firms that the actions of one firm can influence the actions of the other firms. * Long run profits: Oligopolies can retain long run abnormal profits. High barriers of entry prevent sideline firms from entering market to capture excess profits. * Product differentiation: Product may be homogeneous (steel) or differentiated (automobiles). * Perfect knowledge: Assumptions about perfect knowledge vary but the knowledge of various economic factors can be generally described as selective. Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete. Buyers have only imperfect knowledge as to price, cost and product quality. * Interdependence: The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm's market actions and will respond appropriately. This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm's countermoves. It is very much like a game of chess or pool in which a player must anticipate a whole sequence of moves and countermoves in determining how to achieve his or her objectives. For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant. This high degree of interdependence and need to be aware of what other firms are doing or might do is to be contrasted with lack of interdependence in other market structures. In a perfectly competitive (PC) market there is zero interdependence because no firm is large enough to affect market price. All firms in a PC market are price takers, as current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about. In a monopolistically-competitive market, each firm's effects on market conditions is so negligible as to be safely ignored by competitors. * Non-Price Competition: Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition.

3.
In 21st century Britain and America, for many, nothing has changed. Immigrants now come from Eastern Europe or Asia and not from the farms and countryside (or Ireland) as they did 150 years ago. But they are subject to the same inhuman conditions whether they are cockle pickers in Morecambe Bay dying in a flash tide or Polish builders being swindled by unscrupulous employment agencies as in Ken Loach's latest film "It's a free world" (sic).
And of course, the dark satanic mills of 19th century Britain have now moved to China and India, where thousands upon thousands of farmers from the countryside are housed in ‘hostels' and forced to work morning, noon and night for pittance wages to make goods that are exported cheap to America and Europe.
At the same time, as the US Inland Revenue announced the huge inequalities of income in America, it was revealed that one big company in the US had ordered an ‘investigation' into claims that one of its suppliers in India had forced its women workers to stay at the factory so long that one woman had died at the gates because she was refused time off to visit a doctor after feeling ill and another pregnant worker had been forced to have her baby in the factory because she was not given time off (the baby died at birth).
And yet the economists of capitalism have continued to argue that Marx was wrong and that the working-class has not got progressively impoverished. On the contrary, they have improved their lot under capitalism. Paul Samuelson, the doyen of American capitalist economists, who wrote the standard textbook that all budding economists must read, claimed that Marx was so obviously wrong that all his ideas and theories must collapse accordingly.
Marx never argued that immiseration meant an absolute fall in income for the majority. He did say that booms would be followed by slumps when a large number of workers would lose their jobs and be thrown on the scrap heap and their incomes would fall sharply. And the fear of that happening would often make workers do what the capitalists wanted. But much of the time, and for most workers, wages would rise.
As Marx put it: "If the owner of labour power works today, tomorrow he must be able to repeat the same process in the same conditions as regards health and strength. His means of subsistence must therefore be sufficient to maintain him in his normal state as a working individual. His natural needs, such as food, clothing, fuel and housing vary according to the climate and other physical peculiarities of his country. On the other hand, the number and extent of his so-called necessary requirements, as also the manner in which they are satisfied, are themselves products of history... In contrast, therefore, with other commodities, the determination of the value of labour power contains a historical and moral element."
In other words, the man and the woman of the home must work to make ends meet. To do so, they may need a car to get to work or enough money to pay for expensive daily bus and train services. They will need to pay rent or a hefty mortgage, high power and fuel costs, clothes for the kids, very expensive child or nursery care and so on. All this must be built into a ‘subsistence wage' or workers cannot work. And these necessary requirements are rising all the time. So must wages to match them.
The true test of freedom and choice would be if most working families had a sizeable part of their income that was ‘discretionary', i.e. available to spend on what they liked. And they did not work too long for their incomes, so they had time to be with their children, keep fit, educate themselves or just rest. Anybody who cannot do that is impoverished - and this immiseration applies to most workers.
Some capitalist economists admit that Marx did not suggest that workers wages must fall under capitalism, but only that relatively to capitalist incomes, their incomes would fall. But, the economists argued, that proved Marx was wrong. Inequality had not increased under capitalism.
In this column in the past, I have brought to your attentions a whole range of studies that show inequality of income has increased in the last 50 years and inequalities in the Western capitalist countries are just as great as they were when Marx wrote Das Kapital, if not greater.
And inequalities of income in the so-called developing capitalist countries of Asia, Africa and Latin America are truly huge - much larger than in the advanced capitalist economies. Even China, that once could claim some degree of equality (an equality of poverty) under Mao and the Stalinist regime of the 1960s to 1980s, now has figures for inequality that match some of the worst in the world. The development of capitalism in the 1980s and 1990s has made sure of that.
But it is not just inequality of income earned under capitalism that is so shocking. Even more decisive and shocking is the inequality of wealth and ownership. Under capitalism, he or she who owns has control and has real power.
Most of us only own a few things like a house or a car. We don't own businesses, certainly not large ones. Or land, certainly not haciendas or plantations. And we don't have much savings, certainly not millions in stocks and shares or ‘hedge funds'. But a very small part of the world's population does - they are the captains of capitalism.
Last year, the United Nations commissioned research to find out how unequal the world was. The results were truly staggering. The richest 1% of adults in the world own 40% of the planet's wealth according to the study. Europe, the US and some Asia Pacific nations accounted for most of the extremely wealthy. More than one-third live in the US, while Japan accounts for 27%, the UK for 6% and France for 5%.
The global study - from the World Institute for Development Economics Research of the United Nations - was the first to chart wealth distribution in every country as opposed to just income. It included all the most significant components of household wealth, including financial assets and debts, land, buildings and other tangible property. Together these total $125 trillion globally.
The report found the richest 10% of adults accounted for 85% of this world total of assets. Half the world's adult population, however, owned barely 1% of global wealth!
As Duncan Green of Oxfam put it, "these levels of inequality are grotesque. It is impossible to justify such vast wealth when 800 million people go to bed hungry every night. The good news is that redistribution would only have to be relatively small. Such are the vast assets of the rich that giving up a small part of their wealth could transform the lives of millions." Some hope... under capitalism!

4.
Retributive justice is a theory of justice that considers punishment, if proportionate, to be the best response to crime. When an offender breaks the law, s/he thereby forfeits or suspends her/his right to something of equal value, and justice requires that this forfeit be enacted. Retribution should be distinguished from vengeance. Unlike revenge, retribution is directed only at wrongs, has inherent limits, is not personal, involves no pleasure at the suffering of others, and employs procedural standards.
In ethics and law, "Let the punishment fit the crime" is a principle aphorism that means the severity of penalty for a misdeed or wrongdoing should be reasonable and proportionate to the severity of the infraction. The concept is common to most cultures throughout the world and is evident in many ancient texts. Its presence in the ancient Jewish culture is shown by its inclusion in the law of Moses, specifically in Deuteronomy 19:17-21, and Exodus 21:23-21:27, which includes the punishments of "life for life, eye for eye, tooth for tooth, hand for hand, foot for foot." That phrasing in turn resembles the older Code of Hammurabi. Many other documents reflect this value in the world's cultures. However, the judgment of whether a punishment is appropriately severe can vary greatly between cultures and individuals.
Proportionality requires that the level of punishment be scaled relative to the severity of the offending behaviour. However, this does not mean that the punishment has to be equivalent to the crime. A retributive system must punish severe crime more harshly than minor crime, but retributivists differ about how harsh or soft the system should be overall.
Traditionally, philosophers of punishment have contrasted retributivism with utilitarianism. For utilitarians, punishment is forward-looking, justified by a purported ability to achieve future social benefits, such as crime reduction. For retributionists, punishment is backward-looking, justified by the crime that has been committed and carried out to atone for the damage already done.
Depending on the retributivist, the crime's level of severity might be determined by the amount of harm, unfair advantage or moral imbalance the crime caused.
There are two distinct types of retributive justice. The classical definition embraces the idea that the amount of punishment must be proportionate to the amount of harm caused by the offence. A more recent version advocated by the philosopher Michael Davis dismisses this idea and replaces it with the idea that the amount of punishment must be proportionate to the amount of unfair advantage gained by the wrongdoer. Davis introduced this version of retributive justice in the early 1980s, at a time when retributive justice was making a resurgence within the philosophy of law community, perhaps due to the practical failings of reform theory in the previous decades.

Section – C

1.
Utilitarianism is a theory in normative ethics holding that the proper course of action is the one that maximizes utility, usually defined as maximizing happiness and reducing suffering. Classic utilitarianism, as advocated by two influential contributors, Jeremy Bentham and John Stuart Mill, is hedonistic. It is now generally taken to be a form of consequentialism, although when Anscombe first introduced that term it was to distinguish between "old-fashioned Utilitarianism" and consequentialism. According to utilitarianism the moral worth of an action is determined only by its resulting outcome, although there is debate over how much consideration should be given to actual consequences, foreseen consequences and intended consequences. In A Fragment on Government, Bentham says, "it is the greatest happiness of the greatest number that is the measure of right and wrong" and describes this as a fundamental axiom. In An Introduction to the Principles of Morals and Legislation, he talks of "the principle of utility" but later prefers "the greatest happiness principle."
Utilitarianism can be characterized as a quantitative and reductionist approach to ethics. It is a type of naturalism. It can be contrasted with deontological ethics, which does not regard the consequences of an act as a determinant of its moral worth; virtue ethics, which primarily focuses on acts and habits leading to happiness; pragmatic ethics; as well as with ethical egoism and other varieties of consequentialism.
Utilitarianism has been considered by some to be the natural ethic of a democracy operating by simple majority without protection of individual rights, even though protecting individual rights would maximize happiness, thus it falls under the scope of Utilitarianism to protect those rights.
Utilitarianism can be used in any business decision that seeks to maximize positive effects (especially morally, but also financially) and minimize negative ones. As with Bentham's formulation, utilitarianism in business ethics is primarily concerned with outcomes rather than processes. If the outcome leads to the greatest good (or the least harm) for the greatest number of people, then it is assumed the end justifies the means. As Lawrence Hinman observes, the aim is to find "the greatest overall positive consequences for everyone" (Ethics, 136). This can be linked to the idea of cost-benefit analysis, so that "correct moral conduct is determined solely by a cost-benefit analysis of an action's consequences" (Fieser, p7).
Just as John Stuart Mill objected to the coldest, most basic version of the theory, modern business ethicists point to utilitarianism's limits for practical choices. For example, Reitz, Wall, and Love argued that utilitarianism isn't an appropriate tool when outcomes affect a large number of separate parties with different needs or in complex processes whose outcomes and side effects can't be readily foreseen, e.g., implementing new technology.
Utilitarianism suffers from the difficulty that costs and benefits may not be equally distributed. As Hinman comments "utilitarians must answer the question of whom are these consequences for?" (Ethics, 137). For example, if the UK government fails to regulate carbon emissions, acid rain falls on Sweden. If a tax is then placed on UK business to pay for this, the cost is borne by the UK taxpayer, the benefit is enjoyed by Sweden. There can be broad social costs, for example, of promoting unhealthy eating that are paid for by UK taxpayers in higher bills for health care, whereas the benefit (McDonalds profits) are enjoyed by employees and shareholders.
Such rules as "always pay your taxes" suffer from this problem, that the rich are actually subsidising the poor. Why should they? Mill would argue that we are concerned for others because of a general feeling of sympathy, which as a matter of fact, we all have. But suppose (as a matter of fact) I don't share this feeling, then the rational utility maximising thing to do is to avoid paying tax as far as possible - move abroad, set up tax shelters, register my company in the lowest tax economy.
In applying utilitarian principles to business ethics, the cost-benefit analysis is most often used - it is a good decision making tool. Companies will attempt to work out how much something is going to cost them before taking action that should, ideally, result in consequences favourable to everyone. That would mean the company could make a profit, while the consumer benefited from their product. Hopefully, products are fit for purpose, safe, and give value for money. No business would attempt a project without evaluation of all relevant factors first, as well as taking other issues or risks into account that might jeopardise success. Ethical business practice, using utilitarianism, would thus consider the good and bad consequence for everyone the action would affect, treat everybody as having equal rights (at least in Mill's weak rule utilitarianism), with no bias towards self, and would use it as an objective, quantitative way to make a moral decision.

2.
When you buy a good or service, you rarely have perfect knowledge of its quality and safety. You are justifiably concerned about getting “ripped off.” Thus the need for consumer protection.
Economic activity flourishes when consumers can trust producers, but the consumer must have grounds for trust. Consumers value, then, not only quality and safety, but also the assurance of quality and safety. Trust depends on assurance. free markets generate numerous forms of assurance. While it may be impossible to verify the quality of prospective transactions, you can often verify that of past transactions. Reports circulate in various forms—from informal gossip to carefully tended data banks and evaluations—generating a producer’s reputation. “Reputation” may be defined as the relevant current opinion of the producer’s trustworthiness.
Producers gain by providing assurance, so they seek to build, expand, and project a good reputation. They create and display brand names, logos, and trademarks, umbrellas under which their transactions are grouped in the minds of consumers. They manage the extent and scope of their services to generate the repetition and pattern of dealings that give their name and reputation cogency. Once established, a good reputation can be extended to other lines of service where trust had previously been limited. Gasoline suppliers, for example, built brand names so motorists would trust the product at roadside filling stations, and then extended the trusted name to automotive services. Conversely, a producer’s failings or misdeeds damage his reputation and induce consumers to shun him.
For services such as medical therapies or divorces, in which consumers and producers interact perhaps only very infrequently, the grounds for repeat dealings are thin. The demand for assurance in these cases creates opportunities for middlemen to emerge, to serve as a bridge of trust between the consumer and the producer. Consumers, for example, do not buy pharmaceuticals directly from Pfizer or Merck, but rather from established retailers. The local drug store has extended dealings with both the consumer and the producer. Also, the middleman shares some of the producer’s expertise and, to some extent, serves as the consumer’s knowledgeable agent. A nexus then links the parties. To the consumer, the middleman is a friend, and the manufacturer is thus like a friend of a friend. One of the important functions of all retailers, hospitals, clinics, dealers, brokers, and firms is to generate the reputational nexus that brings assurance to parties who would otherwise meet only infrequently or in isolation.
Producers typically put on their best face and will tend to conceal their failings, and this creates opportunities for a parallel industry of record-keeping, evaluation, and certification. These third-party practitioners range from neighborhood mavens to industry inspectors to product raters to medical schools. In any of these varieties, the agent may be called a “knower.” Knowers have some knowledge that the consumer values but does not have. (Some use the term “certifier,” but that term is too narrow.)
Sometimes, the consumer pays knowers for reporting on producers. Consumers pay Consumers Union for its magazine, Consumer Reports; patients pay doctors to recommend drugs; employers pay agencies to screen prospective employees; employees pay agencies to screen prospective employers; and home hunters pay agents and inspectors to evaluate properties.
Other times, the producers pay knowers. Electronics manufacturers pay Underwriters’ Laboratories to evaluate the safety of their products; corporations and governments pay Moody’s or Standard and Poor’s to evaluate the securities they issue; corporations pay accounting firms to conduct an audit; kosher foods manufacturers pay Orthodox Union to certify their preparations; and students pay universities, institutes, and training programs to certify their abilities.
In all such cases, the producer applies to the knower and hopes to receive a certification or seal of approval that he can broadcast to prospective consumers. Word of his trustworthiness may freely flow to anyone. Consumers (or their savvy agents and middlemen) recognize such seals of approval and gain assurance of trustworthiness. The knowers, after a fashion, rent out their own good reputation to producers and have a strong incentive to do so responsibly; if they do not, other knowers may displace them. In the assurance-producing industry, as in any industry, free competition works well.
In addition to these practices, five other paths to assurance exist: 1. Producers demonstrate quality and safety and make the content of promises clear and publicly understood by such means as advertisements, displays, sales assistance, labeling and packaging, and try-out periods. 2. Traders restructure the relationship to reserve for the consumer an advantage held until the end of the relationship, by such means as warranties, guarantees, return policies, security deposits, and simply withheld payment. 3. Consumers and their agents test and monitor producers and third-party knowers using unannounced inspections, decoys, undercover operatives, investigations, and second opinions. 4. The failings of a producer are exposed by rival producers in competitive advertising, product comparisons, and contests. 5. By making visible investments that would be profitable only for a high-quality product, producers signal quality by advertising, obtaining accreditations, and making long-term investments in design, facilities, and so on.
The Internet is vastly expanding all forms of information exchange and reputation building. Critics regularly fault e-commerce for failings in privacy, security, or trust, but the pattern has been for each trouble to be fleeting. Almost as fast as the troubles emerge, entrepreneurs invent e-solutions, usually taking the form of a middleman (such as PayPal, Amazon, and eBay) service or a knower service (such as TrustE, BBBOnline, and Verisign).
On top of all these creative efforts, there is tort law and contract law, which work on the principle of allow-and-respond. That is, we are free to enter into transactions, but once authorities determine some kind of tort or undue hazard, the activity responsible is curtailed or the damages are redressed. When a surgeon cuts into the wrong organ, he is liable for damages. A quack who persists in defrauding consumers may face a court injunction on his products or services. The late political scientist Aaron Wildavsky argued that the allow-and-respond approach provides for open-ended creative developments, self-correction, and resilience.
Another form of consumer protection is government regulation. For example, the U.S. Food and Drug Administration (FDA) calls itself “the world’s premier consumer protection regulatory agency.” Other examples of consumer protection by regulation are occupational licensing, housing codes, the Federal Trade Commission, the Consumer Product Safety Commission, the Securities and Exchange Commission, and the National Highway Traffic Safety Administration.
These kinds of protections generally involve restrictions on freedom of producers to sell goods or services that the government has not certified. Here the principle is banned-until-permitted. The main problem with such restrictions is that, by reducing the range of choices available to consumers, they make consumers worse off. Even if some of the goods and services would have been “rip-offs,” the vast majority of suppressed goods and services would have fulfilled the consumer’s expectations. The case of suppression best documented by economists is the FDA’s suppression of drug development and information, but economists have shed light on many other cases of suppression, such as those from licensing restrictions.
Thus, the regulations impose costs. The question is: Do they deliver benefits that redeem those costs? To assess the benefits of consumer protection laws, we need to understand how well protection is (or would be) supplied absent the governmental “protections.”
In his 1962 classic, Capitalism and Freedom, Milton Friedman posed a fundamental challenge to occupational licensing. His challenge still stands, and, indeed, applies to all the banned-until-permitted-type regulations: even if you believe that information and assurance are, for whatever reason, inadequately supplied, that might justify, at most, a government effort to supply the missing information. Instead of occupational licensing, Friedman preferred a governmental system by which practitioners could earn state certification in the occupation, but were left free to practice and market their services even if they chose not to be state certified. Consumers would be able to choose from a free, legitimate market of plumbers, electricians, barbers, and doctors, both state certified and noncertified. Likewise, the FDA could offer safety and efficacy certification services; manufacturers could seek FDA certification if they so desired, but would be left free to produce and market the product without FDA certification. This would free consumers and their agents and knowers (doctors and pharmacists) to choose a certified or noncertified drug. Friedman, in other words, said that the supposed deficiencies could justify, at most, only governmental certification services analogous to those of Underwriters’ Laboratories—that is, without compulsion. This approach would allow for competing forms of assurance; it would not lock in or privilege the governmental form. Despite the fact that Friedman’s basic challenge has often been posed over the last forty-five years, to my knowledge no one has ever offered a counterargument, much less a persuasive counterargument.