Economics-chapter 7,8,9
Terms
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- sole proprietorship
- a business organization in which the business is owned and managed by a single individual.
- what are the most and least common forms of busniess organizations?
-
most=sole proprietorship
least= partnership - partnership
- a business organization owned by 2 or more persons who agree on a specific division of responsibility and profits
- 3 types of partnerships
-
general (partners share equally)
limited (one person has more control)
limited liability (all partners are limited partners) - corporation
- a business organization that's a legal entity set up by a charter (articles of incorporation), owned by individual stockholders, each of whom has limited liability for the firm's debt
- multinational corporation
- operates in more than 1 country at a time
- business franchise
- a semi-independent business that pays fees to a parent company (ex/ fast food)
- advantages/disadvantages of sole proprietorship
-
A:
easy to establish, few regulations, sole profit receiver, full level of control, easy to discontinue
D:
personal liability,limited access to resources, lack of permanence - advantages/disadvantages of partnership
-
A:
easy to establish, shared decision-making and specialization, larger pool of capital, not subject to double taxation
D:
unlimited liability,potential for conflict, lack of permanence - advantages/disadvantages of corporation
-
A:
limited liability for owners, transferable ownership, ability to attract capital, long life, more potential growth
D:
expense and diffilculty of start up, double taxation, potential loss of control by founders, slow decision-making, lots of legal requirements - advantages/disadvantages of a franchise
-
A:
management training and support, standardized quality, national advertising programs, financial aid, centralized buying power
D:
high fees and royalties, strict operating stds, purchasing restrictions, lmt. product line - What are the 2 types of corporations?
- Closely held and loosely/ publicly held
- Closely held corporation
- issue stock to very few (nepotism) and are privately held
- publicly held corporation
- has many shareholders who can buy/sell stock on the open market
- Corporate Chain of Command
-
corporation owners (stockholders)--> elects
Board of Directors ( decision makers)--> appoints
Corporate Officers (runs corp./oversees production)
--> hires
managers and employees (does the work) - How are corporations financed?
-
PROFITS! (2/3)
selling stocks and bonds
borrowing money - What's the difference between a stockholder and a bondholder?
-
stockholder= an owner that receives dividends
bondholder= creditor that gets interest - What are the 2 types of stock?
- common and preferred stock
- What is common stock?
- gets ownership, gets to vote for Board of Directors, gets dividends ad stock growth
- What is preferred stock?
- gets ownership, no vote for board of directors, gets stock growth and FIXED RATE DIVIDENDS
- New York Stock Exchange (NYSE)
-
aka Big Board, DOW
fractional reports on stock prices
blue chip companies
3000+ companies (DOW=30 industrial companies)
largest in US - NASDAQ
- midsize companies, smaller of the exchanges, autoated/computers (technology companies)
-
S+P 500
and
OTC -
much smaller exchange-->500 companies
40,000 listing on the over-the-counter market, unknown small companies, dirt cheap, learner's market - stock volume
- how many shares have been traded for the day
- what are the 3 ways in which corporations combine?
- horizotal mergers, vertical mergers, congomerates
- horizontal merge
- joins 2 or more firms competing in the same market w/ the same good or service
- vertical merge
- joins 2 or more firms involved in different stages of producing the same good or service. They can control all phases of production
- conglomerate
- when firms buy other companies that produce totally unrelated goods or services. more than 3 businesses that make unrelated products, and no.1 business earns the majority of the profits
- why do corporations combine?
-
it can lead to larger, more efficient firms.
larger firms can produce and sell goods at lower prices and eventually gain monopoly power
improve sales + increase control - What is a cooperative?
-
a business organization owned and operated by a group of individuals for their shared benefit.
3 types: consumer (ex/ special deals for Loehmans members), service (insurance), producer (agricultural marketing) - Non-profit organizations
-
institution that functions like a business but doesn't generate profits.
professional org., business assoc., trade assoc., labor union
TAX EXEMPT
provides services rather than goods - Competition
- the struggle among producers for the $$$ of consumers
- market structure
- describes different types of competition
- perfect competition
- a market structure in which a large number of firms all produce the same product.
- pure monopoly
-
"a single seller in the market"
one firm, no substitutes, difficult to enter/capital - what must market conditions be for perfect competition to exist?
-
many buyers and sellers participate in the market
sellers must offer identical products (commodities)
buyers and sellers must be well informed about products
sellers must be able to enter/exit the market freely
(ex/ agricultural products) - how does perfect competition affect prices?
-
individual firms can't influence prices.
lowest sustainable prices possible. - how do pure monopolies affect price?
- they can take advantage of their market power and charge higher prices
- Monopolies considered "good" or legal
-
government monopoly (ex/ post office)
government-regulated monopoly (ex/ utilities)
b/c they dont waste resources and have set prices
technological monopolies
b/c patents encourage research-->societal improvement - monopolistic competition
-
similar features as perfect competition.
many companies sell products that are similar but not identical
(ex/ airlines, retail stores, fast food) - What must market conditions be for monopolistic competition to exist?
-
many firms
few entry barriers
slight control over price
*differentiated products (ex/ brand name loyalty
-->increases profit) - Aside from prices, how do businesses compete?
-
physical characteristics, location, service level, advertising/image/status
competive vs. imformative advertising - Oligopoly
- a market structure in which a few large firms dominate the market (3-4 firms control 70% of market)
- pure oligopoly vs. differentiated oligopoly
-
pure= identical product (ex/ oil, steel, lumber)
differentiated= similar product (ex/ cars, cereal) - What market conditions must be present for an oligopoly to exist?
-
barriers to entry
economies of sale (avg. cost of production decreases + output increases) - How do oligopolies determine price?
- collusion, cartel, price wars
- collusion
- an agreement among firms to set prices and production levels (price-fixing)
- cartel
- a formal organization of producers that agree to coordinate prices and production
- 4 skill levels of workers
-
1. unskilled-no education (hourly wage)
2. semi-skilled- minimal education (hourly wage)
3. skilled- requires education, no supervision necessary (still hourly wage)
4. professional labor- requires advanced education (yearly salary) - what is the learning effect?
- education increases productivity, and results in higher wages
- How has the government attempted to regulate labor?
-
In the 1930s <3 support
Fair Labor Std.s Act
in the 1940s not so good
Taft-Hatley and right-to- work laws - Labor supply goes up when ______ go ____
- wages; up
- wage
- the amt. of $$$ paid on the basis of time worked (usu. hours)
- Worker supply and demand is determined by:
- worker productivity, worker education, market competition and # of employees, availability of substitutes (machines), wages
- what were the first 3 major unions in the US?
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Knights of Labor
American Federation of Labor
Congress of Industrial Organizations (splinter group)
the last 2 merged to form AFL-CIO - right-to-work laws
- banned mandatory union membership
- types of "shops"
-
closed-you MUST join union (illegal now)
open- don't have to join
union- after a reasonable amt. of time, you should join - Collective Bargaining
- used to negotiate contracts between labor and management
- Mediation vs. arbitration
-
both 3rd party decisions
mediation=non binding
arbitration= binding - Factors used by strikers
-
legal: strikes (sometimes), primary boycott, picketing
illegal: secondary boycott - how can management respond to strikers?
-
legal:
lockout, hire scab labor
illegal:
blacklisting, yellow dog contract, company union