Vocab
Assets
money and other valuables (house, car, etc.) owned by an individual
Two car makers merge to form a single corporation. What kind of merger took place?
horizontal merger (combining two for more firms competing in the same market with the same good or service)
What is the Learning Effect?
The theory that education increases productivity and results in higher wages.
Describe the disadvantages of a sole proprietorship.
Unlimited Liability (legally bound to pay back ALL debts)
Limited Access to Capital (banks are less willing to lend money)
Sole Responsibility (it is impossible for the owner to know everything about business)
Lack Permanence (when shops close due to the owner's illness or retirement the business stops making money)
Describe the advantages of a sole proprietorship.
Easy to start up (small amount of paperwork, minimal legal expenses)
Few Regulations (least-regulated from of business)
Sole Receiver of Profit (owner keep all profits after paying taxes)
Full Control (owner can make fast and flexible decisions)
Easy to Discontinue (must pay DEBTS before stopping business)
Unlimited Liability
The legally bound obligation to pay back ALL debt (even if it is in the from of your house or car)
Explain the structure of corporations. (Who owns the business? Who runs the business?)
A corporation is a legal entity that is owned by individual stockholders.
Stockholders own the business (can buy shares of a business and become part owners)
Stockholders choose a board of directors (President, Treasurer, Secretary)
Managers and employees carry out day to day work.
Competition between businesses increases wages because each business wants to attract the best employees. (Chef example: if a new restaurant opens in town and is willing to pay a chef more money, the chef will go the new restaurant. This will make the previous restaurant increases wages to attract a new chef.)
Describe the disadvantages of a partnership.
Unlimited Liability (at least one partner is legally responsible for paying back ALL debts)
Interpersonal Conflicts (disagreements between partners can affect business)
Describe the advantages of a partnership.
Easy to Start Up (no agreement required by law, may have articles of partnership)
Larger Pool of Capital (each partner's assets improve a firm's ability to borrow from a bank)
Taxation (business does not pay taxes - owner pays taxes on income only)
Share Responsibilities (each partner has different strengths)
Business Organization
an establishment formed to carry on commercial enterprise
Explain which industry has seen an increase in employment and which industry has seen a decrease or steady employment. Why?
Service Industry or Good Industry
Service industry has increased in employment because more jobs are service based now (health care, technology / information, banking, etc.)
Good Industry has decreased in employment because more people are working in the service industry.
Compare the wages of lawyers and dish washers. How is the demand for each job different? How is the supply of each job different?
The demand for lawyers is high, but the supply is low, so lawyers have a high wage.
The supply of dish washers is high and the demand is low, so dishwasher have a low wage.
Describe the disadvantages of corporations.
Expensive and Difficult to Start Up (certificate of incorporation is a MUST)
Double Taxation (corporation pays taxes on profits, stakeholder pay income tax on income from business)
Loss of Control (mangers instead of owners run business, so owners might not have a say)
More Regulations (government and from stakeholders)
Describe the advantages of a corporation.
Limited Liability for Owners (stockholders to not carry personal responsibility for the corporation's actions)
Transferable Ownership (stocks can be bought and sold frequently)
Ability to Attract Capital (easy to borrow money from a bank, a.k.a. bonds)
Long Life (leaders are replaceable and can change as often as needed)
an organized group of workers (usually within the same industry) that is formed to protect and the rights and interests of it's members.
Explain what a strike is, the good and bad things about them, what the possible solutions are, and how they can be avoided.
A strike is an organized stoppage of work until certain demand are met by the company.
Strikes are bad for companies because their employees are not working, so the company is not productive. Strikes can be good and bad for employees because they might get their demands, but them will not be paid while they are striking.
The solutions are mediation and arbitration.
They can be avoided through collective bargaining before a contract ends.
Which industry encouraged the start of labor unions?
Manufacturing (workers had long hours, low pay, and dangerous working conditions in the original factories)
Describe the disadvantages of a franchise.
high franchising feels and royalties (must pay parent corporation to be a part)
strict standards for operation
purchasing restrictions
limited product line
Describe the advantages of a franchise.
management training and support
standardized quality
national advertising programs
financial assistance
buying power (buying in bulk to reduce cost)
Glass Ceiling
an unofficial barriers that prevents minorities and women from advancing in some businesses
Explain the difference between human capital and physical capital.
Human capital is the experience, training, or skills someone needs to do a job.
Physical capital are the goods or tools needed to complete a job.
How to economists decide who is in the labor force or not in the labor force?
In: looking for a job, currently working (1+ paid hour per week or 15+ unpaid hours at a family business)
Out: military, retirees, full-time students, people not looking for work
What are the disadvantages of lower wages for a company and the employees?
Disadvantage:
Employee: lower income
Company: lower interest in job (fewer employees)
What are the advantages of higher wages for the employees and the company?
Employees: earn more money
Company: attract many employees