It seems that every day lately we are confronted with a new company that has acted at least unethically and possibly illegally in the operation and financial reporting of their company's business dealings? Briefly discuss one of these issues. How would you expect this to affect the equilibrium price and equilibrium quantity for this company's products and services?
One of these issues is the over reporting/ under reporting of net income. The company management seeks to show that every quarter the net income of the business has grown. In order to show this they adopt unethical means/illegal means in the operation and financial reporting. One such method is the indiscriminate use of stock options for employees that enable companies to take employment costs off balance sheet and inflate earnings.
This method will reduce the equilibrium price and increase equilibrium quantity for this company's products and services. The reason for this is that the wage is bill is shown lower than what it actually is. This causes the supply curve to shift to the right. With an increase in supply, if the firm is a monopoly/oligopoly/monopolistic competition, there will be a decline in the price of the product of the firm. In case the firm is operating in perfect competition, there will only be an increase in the quantity the company sells in the market.
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Is the elasticity of demand or supply affected? What about the effect on production levels and costs? Are ethical issues more likely to occur in one market type rather than another market type? You don't have to cover all of these topics.
The scenario described above indicates that there is a shift in the supply curve, in other words the costs are shown to be lower than what they actually are. The supply curve shift to its right but its elasticity is not affected. As the method described above does not relate to demand, the elasticity of demand is not directly affected. Any market structure, perfect, monopoly, oligopoly or monopolistic competition, the same ethical issues arise, the salary cost is underreported because of the use of stock options. This means costs are shown at a lower rate and profits are inflated. The decision to show inflated profits is unethical. From the deontological ethical perspective it is the duty of the management to show the correct profits and not inflated profits.
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