VelasquezEighth

editionChapter3TheBusinessSystem:Government,Markets,andInternationalTradeCopyright?2018,2013,2007PearsonEducation,Inc.AllRightsReservedLearningObjectives3.1

Explaintheimpactofglobalizationonthebusinesssystem3.2

AnalyzeJohnLocke’stheoryofnaturalrightsasitrelatestofreemarkets3.3

AssesskeyargumentsassociatedwithAdamSmith’sutilitarianviewoffreemarkets3.4

Analyzecomparativeadvantageasafoundationforfreetradeamongnations3.5

InterpretMarxistviewsontheimpactonworkersoffreetradeandfreemarkets3.6

ExplainthemixedeconomyandredefinitionsofpropertythataffectthebusinesssystemIntroduction:TheBusinessSystem:Government,Markets,andInternationalTrade BusinesssystemGovernmentMarketsInternationaltradeTypesofmarketsIndustrialLaborWholesaleRetail3.1:GlobalizationandtheBusinessSystem(1of2)3.1:ExplaintheimpactofglobalizationonthebusinesssystemTheoristsdebatethefunctionofabusinesssystem.Utilitarianismvs.socialismTheoristsdebatethebenefitsofglobalization.

Whethernationsshouldtradefreelyorbesubjecttorestrictions.3.1.1:EconomicSystemsEconomicsystemThesystemusedtoprovidegoodsandservices.TwobasictasksProducinganddistributinggoodsandservices.SocialdevicesTraditions,commands,andmarkets.3.1:GlobalizationandtheBusinessSystem(2of2)3.1.2:MarketTheoryandMarketPracticeSwinglineManufacturesstaplesandrelatedproductsAbbottLabsPharmaceuticalcompanyWhatethicalissuesariseasaresultofthesecompanies’businesspractices?3.2:FreeMarketsandRights:JohnLocke3.2:AnalyzeJohnLocke’stheoryofnaturalrightsasitrelatestofreemarketsNaturalrightsandafreemarketeconomyFreedomtoexchangegoodsandservices.Freedomtoownproperty(freedomfromgovernmentalinterference).3.2.1:InterpretingJohnLockeLockeandthefreemarketAssumptionsandfailures3.2.2:CriticismsofLockeanRightsSomemajorcriticismsofLocke’sNaturalRightsTheory.Table3.1:DistributionofIncomeandWealthamongAmericanHouseholds,2013

GroupPercentageofTotalU.S.Income(2013)PercentageofTotalU.S.FinancialWealth(2012)PercentageofTotalU.S.NetWorth(2013)AverageNetWorth(2013)PercentageofTotalU.S.Stock(2012)Top1%19.842.736.7$18,623,90038.3Top20%

61.893.088.9$2,260,30091.1Second20%17.86.89.3$236,4006.4Third20%11.11.32.7$68,1001.9Bottom40%9.4-1.0-0.9-$10,80006Figure3.1

RisingU.S.Inequalitysince1973asmeasuredbytheGiniIndex.Figure3.2

IncreasingHouseholdInequality1974-2013.Figure3.3

IncreasingHouseholdInequality1974-2013.3.3:FreeMarketsandUtility:AdamSmith(1of2)3.3:AssesskeyargumentsassociatedwithAdamSmith’sutilitarianviewoffreemarketsAdamSmith:Freemarketsandtheutilitarianargument3.3.1:TheInvisibleHandofMarketCompetitionThe“InvisibleHand”:Supplyanddemandguidesthefreemarket.3.3.2:GovernmentPlaysNoRoleInSmith’stheory,thegovernmentroleistostayoutoftheway.3.3:FreeMarketsandUtility:AdamSmith

(2of2)3.3.3:InterpretingAdamSmithResourceallocation:AccordingtoMisesandHayek,afreemarketandprivatepropertyaretheonlyeffectivemeansofallocatingresources.3.3.4:CriticismsofSmith'sFreeMarketsSomeofSmith’sproblematicassumptionsandomissions:Monopoliesandmanufacturersdon’talwayspayforresources.Profitisnotauniversalmotive.3.3.5:SocialDarwinismSocialDarwinismSpencerthinksbiologicalcompetitioncanbeappliedtosocialstructures,whereonlythefittestbusinessessurvive.Spencer’serrorsPhysicalandsocialentitiesarenotproperlyanalogous;naturalisticfallacy.3.4:FreeTradeandUtility:DavidRicardo(1of2)3.4:AnalyzecomparativeadvantageasafoundationforfreetradeamongnationsSmith’sutilitarianargumentextendedtointernationaltrade.Principlesofsupplyanddemandleadtoimprovedsocietalconditions.“Absoluteadvantage”encouragesspecialization.Costdifferencesthatleadtoproducingcheapergoods.Labor,workers’skills,climate,technology,equipment,land,andnaturalresources.3.4.1:Ricardo'sArgumentforComparativeAdvantageRicardoarguesfor“comparativeadvantage”:specializationisbetter.3.4:AbsoluteAdvantageRatioCountry100BarrelsofWine(CostinWorker-Years)100RollsofCloth(CostinWorker-Years)England120100Portugal80903.4:ProductionwithoutTradeCountry/TotalWineClothEngland100barrels100rollsPortugal100barrels100rollsTotaloutput200barrels200rolls3.4:SpecializationRatioCountry/TotalWineClothEngland0220rollsPortugal212barrels0Totaloutput212barrels200rolls3.4:ComparativeAdvantageRatioCountry/TotalWineClothEngland102barrels114rollsPortugal110barrels106rollsTotaloutput212barrels220rolls3.4:FreeTradeandUtility:DavidRicardo(2of2)3.4.2:ComparativeAdvantageandGlobalizationRicardo’sargumenthasbecomeinfluentialincreasingglobalization.3.4.3:CriticismsofRicardoAsignificantcriticismofRicardo’sargumentisthatitdoesnotholdupinpractice.3.5:KarlMarxandJustice:ACritiqueofFreeMarketsandFreeTrade(1of3)3.5:InterpretMarxistviewsontheimpactonworkersoffreetradeandfreemarketsMarx’sfundamentalcritiqueofprivatepropertyandfreemarkets:Inequalityiscreated.3.5.1:AlienationAlienationEstrangementfromselfandone’sownwork.3.5.2:HistoricalMaterialismMarketstructuresForcesofproduction,relationsofproduction,andsocialclasses.SocialsuperstructuresPoliticalandsocialinstitutions,influenceonhistory,historicalmaterialism.3.5:KarlMarxandJustice:ACritiqueofFreeMarketsandFreeTrade(2of3)3.5.3:ImmiserationofWorkersImmiserationofworkersWorkers’livesgetworse,notbetter,undercapitalism.Table3.2:PrivateandProductivePropertyPropertyTypeMarx’sViewExplanationPrivatepropertyAprivatepropertysystemthatallowsprivatecontrolofproductiveproperty,heheld,isthebasisofthealienation,inequalities,andimmiserationthatcharacterizecapitalistsocieties:Marxdidnotsuggestthathewantedpeopletodoawaywithprivateownershipoftheirclothes,houses,orfood.Thatis,hedidnotobjectto“thepowertoappropriatetheproductsofsociety.”However,hedidobjecttoprivateownershipoffactories,companies,mines,farms,andotherproductiveproperty(i.e.,theprivateownershipofcapital).3.5:KarlMarxandJustice:ACritiqueofFreeMarketsandFreeTrade(3of3)3.5.4:Critics’ViewsonKarlMarx’sCriticismsCritiquesofMarxismJusticerequiresfreemarkets.Privatepropertyandfreemarketsaremoreimportantthanequality.Freemarketsgeneratecommunity,notalienation.Noimmiseration.3.6:TheMixedEconomy,NewFormsofProperty,