Exploring Profit

1. Some critics of capitalism have suggested that we need some way to measure the social responsibility of business. (Look at "corporate social responsibility" at wikipedia.com. Anyone who likes to talk about stakeholders rather than shareholders is an advocate of this position.) The response by some economists, such as Milton Friedman, (search for him on the Internet--who was he and for what is he famous?) is that profit is as good a measure as we are likely to get of the social responsibility of business, at least if we have reasonably competitive markets. A firm that produces at a loss is socially irresponsible, while a firm that makes a profit is socially responsible. What is the argument behind this assertion, that is, why is a firm running a loss rather than a profit being socially irresponsible?

Every economists should be able to explain why profit can be considered a measure of social responsibility, Every economist also is aware of many problems of using profit for this purpose. Several later chapters of CyberEconomics are devoted to explaining these problems. But to get a head start, search the Internet for the term "market failure" and explain how what you find weakens the case for using profit as a measure of social responsibility.

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