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19 download_doc-31.php - G202 Topic 1 The Non-Market...

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G202 (1/14/09) Topic 1: The Non-Market Business Environment REQUIRED READINGS: “Case: Wal-Mart’s Business Environment” and “A Hummer of a Tax Break” Online Wal-Mart Case Discussion: Jan. 23 rd —Jan. 25 th In-class Wal-Mart Case Debriefing: Jan. 26 th Corporate Social Strategy Corporate Social Responsibility (CSR): Emphasizes that firms should think about ALL stakeholders in ALL its operations Firms are responsible for their entire value chain. From the beginning of production to the end of product life. Stakeholders: Market Stakeholders: customers, clients, employees, shareholders, etc… Non-Market Stakeholders: communities, governments, the environment, socially-minded non- governmental organization (NGOs), etc… Corporate Social Strategy Socially Minded NGOs will take action whenever they believe government regulations and corporations are insufficient at ensuring quality. Social Issues: Environmental Damage, Labor Rights, Animal Rights, Moral and Ethical Concerns, Consumer Safety, etc… Strategic CSR (profit enhancing): Manage non-market threats and look for non-market opportunities to exploit. Evaluate current and proposed government regulation. Monitor interest group activity and changing social demands. Non-Market Forces Market Efficiency and Public Policy Firms often take political action that results in market inefficiencies: Limited competition and increased market power.
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NGOs usually take political action when market inefficiencies exist: Lack of property rights, market power abuses, quality concerns, externalities (pollution), etc… Policy changes can either correct existing inefficiency, or it can be the cause of inefficiency depending on the state of the market before the policy is implemented. Markets and Efficiency Demand : Based on the Value to Consumers. Higher prices cause consumers to switch to relatively cheaper products. Consumer Surplus (CS): difference between what consumers are willing to pay and the amount they have to pay. Supply : Based on the Cost to Producers. Higher prices cover additional production costs. Producer Surplus (PS): difference between the minimum supply price and market price. Markets and Efficiency The Idea of ‘Markets’ Field Trip to the Grocery Store. Market Equilibrium occurs at the intersection of supply and demand. Productive (Allocative) efficiency: Produce and sell product that consumers value more than the costs of the productive resources. Avoid producing and selling product that consumers value less than the costs of the productive resources. G202 (1/21/09) Markets and Efficiency (1) Below Qe, you are giving up producing some units that are valued more than their productive costs
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(2) Beyond Qe, you are producing in a range where the units are valued less than their productive costs (3) At Qe: Efficiency occurs The Effects of Taxes Taxes imposed on sellers:
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