Ch. 2, p.

37
Ethics the study of right and wrong and how
people make choices.
Ethical Decision a decision deemed right
according to a standard
Business Ethics using moral standards for
business situations.
Engle v. R. J. Reynolds lawsuit against
tobacco companies led to $246 billion in
settlements.
p. 39
Conflict of Interest a businessperson takes
advantage of a situation for his or her own
personal interest rather than for the
employers interest.
Anything given to a person in a business deal
is classified as a bribe.
Conflict of interest arises when an employee
has a personal circumstance that interferes
with his obligation or when he uses his status
in the company for personal gain.
Fig. 2.1. Factors that influence ethical
behaviors.
p. 40
Individual Factors Affecting Ethics
Individual knowledge of an issue, personal
values, and personal goals
Social Factors Affecting Ethics
Cultural norms gratuities taken in this
country, but maybe not another.
Co-Worker if a co-worker does something,
like call 24/7, it might influence other co
workers to call 24/7 and make it a norm.
Significant others spouses, relatives, and
friends can change what is ethical and
unethical in the workplace.
Use of Internet
Opportunity as a Factor Affecting Ethics
Presence of Opportunity Opportunity is the
amount of freedom an organization gives an
employee to behave unethically. For example,
one person is on register handling money and
another is serving the food, not one doing
both.
Ethical codes
Enforcement
p. 41
Sarbanes-Oxley Act of 2002 new legal
protection for those who report corporate
misconduct. Basically stricter punishments for
misconduct in a business environment.
Code of ethics a guide that shows
acceptable and ethical behavior by an
organization. It shows the uniform policies,
standards, and punishment for violations.
p. 42
Ethics officers are appointed in some
companies in order to be a person to consult
for what is the right and wrong thing to do.
Whistle-Blowing informing the press or
government officials about unethical practices
within ones organization.

Fig. 2.2 example of a Code of Ethics

p. 44
Table 2.1 Guidelines for Making Ethical
Decisions
Social Responsibility the recognition that
business activities have an impact on society
and the consideration of that impact in
business decision making. Examples on p.
44-47
p. 48
Caveat Emptor Latin phrase meaning let
the buyer beware. Basically means what
you see is what you get and if its not what
you expected then too bad.
Table 2.2 shows 6 early government
regulations.
p. 49
Economic model of social responsibility
society will benefit most when business is left
alone to produce and market profitable
products that society needs.
Socioeconomic Model of Social Responsibility
business should emphasize the impact of its
decisions on society.
p. 50
Pros and Cons of Social Responsibility
Table 2.3 Comparison of Economic and
Socioeconomic Models of Social
Responsibility
p. 51
Consumerism all activities undertaken to
protect the rights of consumers.
The Right to Safety the products they
purchase must be safe for their intended use,
must include thorough and explicit directions
for proper use, and must be tested by the
manufacturer to ensure product quality and
reliability.
Corrective can be expensive, increase
number of law suits, and consumer demand.
Right to be Informed consumer must have
access to complete information about
ingredients and nutrition must be provided on
food containers, information about fabrics and
laundering methods must be attached to
clothing and lenders must disclose the true
cost of borrowing the money they make
available to customers who purchase
merchandise on credit.
p.52
Right to Choose consumers must have a
choice of products, offered by different
manufacturers and sellers, to satisfy a
particular need.
The Right to be Heard The companies
must listen and take appropriate action when
customers complain.
The Right to Consumer Education people
are able to be informed about their rights as
consumers.
p. 52-54 Major Federal Legislation
Protecting Consumers

p. 55
Minority a racial, religious, political, national,
or other group regarded as different from the
larger group of which it is a part and that is
often singled out for unfavorable treatment.
Affirmative Action Program a plan that
increases the number of minority employees
at all levels of the organization.
Fig 2.3 shows the comparative income levels
of different minorities
p. 56
2 Problems with affirmative action plans:
Quotas, or reverse discrimination and Equal
Employment Opportunity Commission (EEOC)
Equal Employment Opportunity Commission
(EEOC) a government agency that has the
power to investigate complaints of
employment discrimination and sue firms that
practice it.
Hard-core Unemployed workers with little
education or vocational training and a long
history of unemployment.
Fig 2.4 Relative Earnings of Male and
Female Workers
p. 57
National Alliance of Business (NAB) a joint
business-government program to train the
hard-core unemployed.
Pollution the contamination of water, air, or
land through the actions of people.
p. 58: Table 2.5: Major Environmental Laws
p. 59: Air Pollution
Aviation emission of carbon dioxide from the
jets causes air pollution and the carbon
dioxide combined with other gases cause a
stronger effect on the atmosphere.
Carbon monoxide, hydrocarbons, weather and
geography affect the air pollution.
p. 60: Land Pollution
Issues with land Pollution is that:
(1) How to restore damaged or contaminated
land at a reasonable cost
(2) How to protect unpolluted land from future
damage
Noise Pollution
Noises from ongoing events, machinery,
traffic, or everyday life, caused many people to
suffer from permanent hearing loss
p. 62: Developing a Program of Social
Responsibility
We need these four steps
(1) Commitment of Top Executives
(2) Planning
(3) Appointment of a Director
(4) The Social Audit a comprehensive
report of what an organization has done and is
doing with regard to social issues that affect it.
This is what they use in order to know whether
or not to fix social responsibility
Funding the Program
(1) Management can pass the cost on to
consumers at a higher price

(2) The Corporation may have to absorb the

cost; it turns into a business expense and
profit is reduced
(3) The Federal Government can pay for all or
part through tax reductions.
Ch. 3, p. 71
International Business encompasses all
business activities that involve exchange
across national boundaries
Absolute Advantage the ability to produce a
specific product more efficiently than any other
nation
Comparative Advantage the ability to
produce a specific product more efficiently
than any other product.
p. 72 - 73
Exporting selling and shipping raw materials
or products to other nations.
Importing purchasing raw materials or
products in other nations and bringing them
into ones own country.
Balance of Trade the total value of its
exports minus the total value of its imports
over some period of time.
If the country imports more than it exports,
the balance of trade is negative, or
unfavorable.
Trade Deficit a negative balance of trade
p. 74
Are trade deficits bad?
Balance of Payments the total flow of money
into a country minus the total flow of money
out of that country over some period of time.
p. 75
Import Duty (Tariff) a tax levied on a
particular foreign product entering a country.
Revenue tariffs imposed solely to generate
income for the government.
Protective Tariffs imposed to protect a
domestic industry from competition by keeping
the price of competing imports levels with or
higher than the price of similar domestic
products.
Dumping the exportation of large quantities
of a product at a price lower than that of the
same product in the home market
Nontariff Barriers a nontax measure imposed
by a government to favor domestic over
foreign suppliers
Ex. of nontariff barriers:
Import Quota a limit on the amount of a
particular good that may be imported into a
country during a given period of time.
Embargo a complete halt to trading with a
particular nation or of a particular product.
Foreign-Exchange Control a restriction on
the amount of a particular foreign currency
that can be purchased or sold.
Currency Devaluation the reduction of the
value of a nations currency relative to the
currencies of other countries
p. 76

Cultural Barriers can be a nontariff barrier.

Reasons for Trade Restrictions:
(1) To equalize nations balance of payments
(2) To protect new or weak industries
(3) To protect the health of citizens
(4) To retaliate for another nations trade
restrictions
(5) To protect domestic jobs
Reasons against Trade Restrictions:
(1) Higher prices for consumers
(2) Restriction of consumers choices
(3) Misallocation of international resources
(4) Loss of Jobs
p. 78-80, Expected Outlook of Trade
p. 81
General Agreement on Tariffs and Trade
(GATT) an international organization of 153
nations dedicated to reducing or eliminating
tariffs and other barriers to world trade.
Fig 3.4 WTO members that are in the World
Merchandise Trade
p.82
The Tokyo Round a gathering in Tokyo of
approximately 100 nations for GATT
negotiations
The Uruguay Round launched to extend
trade liberalization and widen the GATT treaty
to include many different products.
World Trade Organization (WTO) powerful
successor to GATT that incorporates trade in
goods, services, and ideas
The Doha Round WTO members further
reduce trade barriers through multilateral trade
negotiations over the next three years.
p. 83 - 85
Fig 3.5 Map showing the EU
Economic Community an organization of
nations formed to promote the free movement
of resources and products among its members
and to create common economic policies.
European Union (EU)
The North American Free Trade Agreement
(NAFTA)
The Central American Free Trade Agreement
(CAFTA)
The Association of Southeast Asian Nations
The Commonwealth of Independent States
Trans-Pacific Partnership (TPP)
The Common Market of the Southern Cone
(MERCOSUR)
The Organization of Petroleum Exporting
Countries
Licensing a contractual agreement in which
one firm permits another to produce and
market its product and use its brand name in
return for a royalty or other compensation.
p. 86 - 90
Letter of Credit in favor of the exporter,
meaning that the funds are tied specifically to
the trade contract involved.

Bill of Lading document issued by a

transport carrier to an exporter to prove that
merchandise has been shipped.
Draft issued by the exporters bank, ordering
the importers bank to pay for the
merchandise, thus guaranteeing payment
once accepted by the importers bank.
Joint Ventures a partnership formed to
achieve a specific goal or to operate for a
specific period of time.
Totally Owned Facilities its own production
and marketing facilities in one or more foreign
nations.
Direct Investment provides complete control
over operations, but it carriers a greater risk
than the joint venture.
Euro factories supplying neighboring
countries as well as their own local market
Strategic Alliance a partnership formed to
create competitive advantage on a worldwide
basis.
Trading Company a link between buyers and
sellers in different countries.
Countertrade an international barter
transaction in which goods and services are
exchanged for different goods and services.
Multinational Enterprise a firm that operates
on a worldwide scale without ties to any
specific nation or region.
Table 3.3 The Ten Largest Foreign and
U.S Multinational Corporations
Export-Import Bank of the United States an
independent agency of the U.S government
whose function is to assist in financing the
exports of American firms.
p. 92-93
Multilateral Development Bank (MDB) an
internationally supported bank that provides
loans to developing countries to help them
grow.
International Monetary Fund (IMF) an
international bank with 188 member nations
that makes short-term loans to developing
countries experiencing balance-of-payment
deficits.
Ch. 4, p. 106 - 109
Sole Proprietorship a business that is owned
(and usually operated) by one person.
Advantages of Sole Proprietorships
(1) Simplest and Cheapest
(2) Successful sole proprietors are often
proud of his or her accomplishments
(3) All profits becomes personal earnings
(4) They dont pay special state and federal
income taxes that corporations pay.
(5) Sole Proprietors make their own
decisions, they are the boss
Disadvantages of Sole Proprietorships
(1) Unlimited Liability a legal concept that
holds a business owner personally
responsible for all the debts of the
business.

(2) If the sole proprietor dies, retires, or is

legally incompetent, the company ceases
(3) Banks, suppliers, and other lenders
usually are unwilling to lend large sums of
money to sole proprietorships.
(4) The proprietor is the sole manager
(5) They may find it harder to keep competent
help
p. 110
Partnership a voluntary association of two or
more persons to act as co-owners of a
business for profit
General Partners a person who assumes full
or shared responsibility for operating a
business.
General Partnership a business co-owned
by two or more general partners who are liable
for everything the business does.
Limited Partner a person who invests money
in a business but who has no management
responsibility or liability for losses beyond his
other investment in the partnership.
Limited Partnership a business co-owned by
one or more general partners who manage the
business and limited partners who invest
money in it.
p. 111 - 114
Master Limited Partnership (MLP) or publicly
traded partnership, a limited partnership that
has units of ownership that can be traded on
security exchanges much like shares of
ownership in a corporation.
Articles of Partnership an agreement listing
and explaining the terms of the partnership.
Partnership agreement components
Advantages of Partnership
(1) Easy to form
(2) A partnership usually has more capital
available due to their ability to pool their
funds
(3) Concerned with the operations of the firm
(4) Partners often have complementary skills
(5) All profits belong to the owners of the
partnership.
(6) No taxes, but must file an annual
information return that states the names
and addresses of all partners involved in
the business
Disadvantages of Partnership
(1) Each general partner has unlimited liability
for all debts of business
(2) Management disagreements like spouses
or a relative in the business
(3) Partnerships end if one of the general
partners withdraws, dies, or declares
legally incompetent.
(4) Buying out a partner
Beyond the Partnership
p. 115

Corporation an artificial person created by

law, with most of the legal rights of a real
person.
Stocks shares of ownership of a corporation
Stockholders people who own a
corporations stock
Closed Corporations a corporation whose
stock is owned by relatively few people and is
not sold to the general public.
Open Corporation the stock can be bought
and sold by any individual
Forming a Corporation
Domestic Corporation a corporation in the
state in which it is incorporated
Foreign Corporation corporation in any state
in which it does business except the one in
which it is incorporated
Alien Corporation corporation chartered by a
foreign government and conducting business
in the United States
Common Stock stock owned by individuals
or firms who may vote on corporate matters
but whose claims on profits and assets are
subordinate to the claims of others
p. 117
Preferred Stock owned by individuals or
firms who usually do not have voting rights but
whose claims on dividends are paid before
those of common-stock owners
Dividend a distribution of earnings to the
stockholders of a corporation
Proxy a legal form listing issues to be
decided at a stockholders meeting and
enabling stockholders to transfer their voting
rights to some other individual or individuals.
Board of Directors the top governing body of
a corporation and is elected by the
stockholders.
Corporate Officers appointed by board of
directors
p. 118 - 120
Advantages of Corporations
(1) Limited Liability feature of corporate
ownership that limits each owners
financial liability to the amount of money
that he or she has paid for the
corporations stock.
(2) Best for raising capital
(3) Ownership is transferred when a sale is
made.
(4) A corporation exists independently of its
owners and survives them.
(5) They are able to recruit more skilled,
knowledgeable, and talented managers
Disadvantages of Corporations
(1) Forming a corporation can be a relatively
complex and costly process
(2) Must meet various government standards
before it can sell its stocks to the public.

(3) Large corporations may employ thousands

of employees and conflict can arise.
(4) Must pay tax on their profits and a
personal income tax on the profits of
dividends.
(5) No secrecy because they are required to
submit detailed reports to government
agencies and to stockholders.
p. 121 - 122
S-Corporation a corporation that is taxed as
though it were a partnership.
Limited-Liability Company (LLC) form of
business ownership that combines the
benefits of a corporation and a partnership
while avoiding some of the restrictions and
disadvantages of those formed of ownership.
Not-for-profit Corporation a corporation
organized to provide a social, educational,
religious, or other service rather than to earn a
profit.
p. 123
Joint Venture an agreement between two or
more groups to form a business entity in order
to achieve a specific goal or to operate for a
specific period of time
Syndicate a temporary association of
individuals or firms organized to perform a
specific task that requires a large amount of
capital.
p. 124
Corporate Growth
Merger purchase of one corporation by
another
Acquisition essentially the same thing as a
merger, but the term usually is used in
reference to a large corporations purchases of
other corporations.
Hostile Takeover a situation in which the
management and board of directors of a firm
targeted for acquisition disapprove of the
merger.
Tender offer an offer to purchase the stock of
a firm targeted for acquisition at a price just
high enough to tempt stockholders to sell their
shares.
Proxy fight a technique used to gather
enough stockholder votes to control a targeted
company
p. 125 - 126
Horizontal merger- a merger between firms
that make and sell similar products or services
in similar markets.
Vertical Mergers a merger between firms
that operate at different but related levels in
the production and marketing of a product.
Conglomerate Merger takes place between
firms in completely different industries.