Business Ethics Chapter 11 Question & Answer

Global distributive justice requires winners from free trade to compensate losers whenever the losers are the least advantaged.

Aggregative utilitarian reasoning often creates distributive justice problems. The factor-proportions law shows that the abolition of trade restrictions between two countries will create winners and losers within each country. Both countries are better off overall because of free trade, so the winners in each country could potentially compensate the losers.

Ricardo’s law of comparative advantage suggests that when two countries trade freely, the total amount of goods in both economies will go up, even if one country can produce all goods more efficiently, in absolute terms, than the other can. This provides an economic utilitarian justification for free trade.

Moral standing does not vary with distance, so there is no morally relevant distinction between local and faraway people. Therefore, justifications for free trade in domestic markets should also be arguments in favour of free trade, and against protectionism, in the international market.

A liberal egalitarian justification of a market economy points out that we can use market mechanisms to efficiently produce goods and services, and then use redistributive taxation to better the condition of the least advantaged members of the market society.

The assumptions of this utilitarian justification for a market economy include no monopolies, no returns to scale, no positive or negative externalities, no public or open-access goods, no lack of information, no transaction costs, and no problems with willingness to pay as a measure of the strength of preferences. In practice, market failures arise from the violation of these assumptions.

An indirect, economic utilitarian justification of a market economy argues that, under conditions of perfect competition, the self-interested actions of market participants will lead to equilibrium in the prices and quantities of goods. This equilibrium will maximize overall net benefits as measured in financial terms.

A rights-based, libertarian justification of a market economy argues that if the economy has arisen historically from fair initial appropriation and a fair sequence of exchanges, then even an unequal distribution of income and wealth is justified.

A contractarian ethic justifies a market economy by showing that enforcing its legal rules will enable self-interested participants to avoid the dilemmas of cooperation.