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Ethical Issues of StocksMr. Way, Economics, 4-26-12
12.2.9 Describe the functions of the financial markets.
12.1.4 Evaluate the role of private property as an incentive in conserving and improving scarce resources, including renewable and nonrenewable natural resources.
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Ethical Issues of Stocks
• The rich get richer
• Profit maximization – at what cost?
• Corporatism
• Insider trading
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The Rich Get Richer
• In order to buy stocks, you have to have money.
• The more money you have, the more stocks you can buy and profit from.
• This exponential growth of wealth causes tremendous inequality between classes.
• Worst of all, the richest of all make the most money without a modicum of work.
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Profit Maximization
• Firms achieve profits by lowering costs.
• Costs include:– Environmental protections– Workers’ rights, pay, # of workers– Lawsuits for company wrong-doing– Taxes (which pay for social programs)
• Publicly traded firms are much more likely to be concerned ONLY with profit maximization
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Corporatism
• A firm that achieves monopoly status is able to squeeze the maximum profit from a market.
• Therefore, profit maximizing firms will try to become monopolies by bankrupting or buying-out competition.
• Consumers are left with less choice, and giant, powerful corporations develop.
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Insider Trading• Although it is illegal, the potential for profit
is so great that it is very common. Plus, it’s hard to detect and prove.
• The rise of giant corporations concentrate financial power in the hands of a small group of extremely wealthy individuals.
• Those few could share info and plan strategies to manipulate their companies’ rises and falls for maximum stock profits.
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Conclusion
• Although the stock market definitely promotes economic growth, it also creates a variety of serious ethical dilemmas for society to address.
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1/2-Page Writing Prompt
• Write a 1/2-page (single-sided, single-spaced) response to the question:
• Would society be better off without the stock exchange?
(suggestion: explain both positive and negative aspects of stock markets and conclude by making an overall evaluation)