Ethics, Economics, and Financial Management Review

This set covers vocabulary related to economic biases, market ethics, organizational structures, government roles, and corporate finance based on the lecture transcript.

Confirmation Bias

When you seek or interpret information that supports your already existing belief.

Ethics

Rules about how people should treat others; the norms of behavior that guide human actions.

Government

An institution and processes through which a society organizes itself, allocates authority, and makes and enforces decisions to achieve collective goals and provide essential services.

Business

An organization that raises capital from investors, uses this capital to obtain productive assets, and uses these productive assets to produce economic assets — goods and services — for customers, hoping to generate a profit.

Profit

The difference between the revenues received by a business from selling its goods/services and its costs of production; occurs when revenues exceed costs.

Nonprofit Organizations

Groups in the U.S. that are tax-exempt as "public charities" because they are formed to provide "public benefit."

Non-governmental organization (NGO)

A private sector, voluntary organization that contributes to, or participates in, cooperative projects, education, training or other humanitarian, progressive, or watchdog activities.

Self-interest

When individuals pursue their own interests while at the same time respecting the rights of other market participants, producing an exchange fair to both parties.

The "Invisible Hand"

The concept that when people pursue their own interests, society can benefit as competitive markets use resources efficiently and produce what people actually want.

Opportunism

Individuals seeking to benefit themselves by unethical behavior that harms others, resulting in an unethical exchange where one party unfairly exploits another.

Creative Destruction

The dismantling of long-standing practices in order to make way for innovation; considered a driving force in capitalism.

Laissez-faire

A doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights.

Mixed Economies

Systems where private property rights are respected and businesses have substantial economic freedom, but governments intervene to achieve social goals.

Socialist or Command Economy

An economy where production, investment, prices, and incomes are determined centrally by a government.

Politics

The actions or activities concerned with achieving and using power in a country or society.

Monetary Policy

Management of interest rates and the total supply of money in circulation, generally carried out by central banks such as the Federal Reserve.

Fiscal Policy

The collective term for the taxing and spending actions of governments, determined by the Executive and Legislative Branches in the U.S.

Economic Rents

Payments that are not required to bring forth a good or service, but are rather an exploitation of some advantage that restricts competition.

Crony Capitalism

An economic system characterized by close, mutually advantageous relationships between business leaders and government officials.

Capital Budgeting/Investment Decision

The managerial decision regarding what productive projects the firm should undertake.

Capital Structure/Financing Decision

The managerial decision regarding how the company should raise capital to finance its activities.

Cash Management/Working Capital Management

The managerial decision regarding how the corporation ensures it has enough cash to operate on a daily basis.

Fiduciary

A person responsible for making decisions that benefit another, not the person making the decisions.

Shareholders

Equity holders or stockholders who have control of the company and rights to all residual profit.

Stakeholders

Anyone other than shareholders or bondholders who have a stake, or interest in the firm.

Corporate Governance

The structure and procedures that allow the shareholders to control the corporation.

Agency Relationship

An organizational form that legally separates ownership and management, where shareholders are principals who hire managers as their agents.

Principal

A person who employs another to act on their behalf and controls that person's actions.

Agent

A person that acts for or in place of another by authority of that person.

Agency Problem

The conflict occurring when managers use their position to make themselves better off at the expense of the shareholders.

Agency Costs

The reduction in a corporation’s cash flows created by the existence of the agency conflict.

Agency Control Devices

Procedures, contracts, and organizations used to guide managers to focus on their fiduciary duties and limit opportunistic behavior.

Corporate Social Responsibility (CSR)

A corporation's responsibility for its effects on environmental and social well-being, often involving efforts beyond regulation.

Efficiency

Getting the maximum output from scarce resources.

Proprietorship

A business where a person combines the functions of owner, manager, and worker; efficient in small-scale operations.

General Partnership

A business where several people share ownership and management; effective for professional organizations like accounting or law firms.

Corporation

A business chartered by government as a legal entity separate from its owners that can enter into contracts independently.

Limited Life

A characteristic where the business is owned by natural persons and ends when the owners die.

Unlimited Life

A characteristic where the business is a separate legal entity that does not end with the life of an owner.

Unlimited Liability

When the owners of a business are personally liable for the obligations of the business.

Limited Liability

When an owner's liability in the business is restricted to the amount they have invested.

3 Facets of Economic Activity

1. government

2. experts

3. markets