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Explorations in Economics

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Presentation on theme: "Explorations in Economics"— Presentation transcript:

1 Explorations in Economics
Alan B. Krueger & David A. Anderson

2 Chapter 7: Business Organizations
Module 19: Businesses and the Economy Module 20: Types of Businesses Module 21: How Businesses Grow Module 22: Business Ethics

KEY IDEA: The lure of profits motivates entrepreneurs to take risks and start businesses. OBJECTIVES To describe how the workings of a business firm differ from the workings of a market. To explain why and how entrepreneurs start businesses. To discuss the risks and rewards of running a business. Entrepreneurs are the factor of production that coordinates the use of the other factors—land, labor, and capital. This chapter will help you understand how business firms operate and risk rewards.

The incentive to earn an income, coupled with a demand for goods and services, creates a willingness to start a firm. A firm can provide income, self-worth, and community needs. Discuss why people like work and what parts of being your own boss can help people. Do any of you aspire to be your own boss? Why?

Entrepreneurs can be inventors and/or innovators. Discuss the differences and similarities of inventors and innovators. Have the class brainstorm other recent innovations like social networking and technology gains in manufacturing and other work places..

• Visionary— sees a business opportunity when others may not • Innovative— transforms ideas into new products, processes, or businesses • Willing to take risks— puts savings and reputation on the line by starting a new venture • Optimistic— is realistic but confident of business success; • Self-motivated— is disciplined and persistent willing, and able to solve problems • Attentive— learns from experts, colleagues, and customers and recognizes and adapts to market conditions • Organized— coordinates and manages resources efficiently This a good place to look up successful CEO’s and other entrepreneurs from companies the students would recognize. Here is a short list to start: FIRM/PRODUCT NAME William Edward Boeing Boeing Aircraft Thomas Monaghan Domino's Pizza Gloria Vanderbilt Gloria Vanderbilt Enterprises David Hewlett Hewlett Packard George Eastman Eastman Kodak Steven Jobs Apple, NEXT Steve Wozniak Apple Computer Walt Disney Disney Studios Ray Kroc McDonalds Alfred P. Sloan General Motors John D. Rockefeller Standard Oil Thomas Watson IBM Andrew Carnegie US Steel Henry Ford Ford Motor Company Adolphus Busch Anhueser Busch Ted Turner Turner Broadcasting Levi Strauss Levi Strauss & Co. Colonel Harlan Sanders Kentucky Fried Chicken Charles Tandy Tandy and Radio Shack Sam Moore Walton Walmart Joyce Hall Hallmark Cards Jean Nidetch Weight Watchers Jeff Bezos Amazon

“The Tutor Shop” 1. How would you earn revenue? 2. Would you collect a fee from the tutor after each session with a student? 3. Would you charge the tutors a one- time fee when you first connect them to each student? 4. How would you find and recruit good tutors? 5. How would you inform those who need tutors about the service? Use the text example, p. 231 to discuss a business model and understand it through the market for tutors.

8 MODULE 19 REVIEW What does it mean to be… A. Visionary? B. Innovative?
C. Willing to take risks? D. Optimistic? E. Self- motivated? F. Attentive? G. Organized? H. An entrepreneur? Have the students add these terms to their vocabulary notebook. Make sure they are writing examples of each of the terms.

KEY IDEA: Entrepreneurs consider the advantages and disadvantages of different organizational types before they form a new business. OBJECTIVES: To identify the important features of sole proprietorships, partnerships, and corporations. To evaluate the advantages and disadvantages to the owners of each form of business organization. To assess the importance of each form of business organization to the economy. To explain other ways to organize a business. How businesses are organized will determine the amount of production, and ultimately, the amount of profit. Some firms will be no-for-profit but good organization will still be the key to their success in serving a designated group of clients.

10 How to Start a Sole Proprietorship
SOLE PROPRIETORSHIPS A sole proprietorship is a business firm owned by one person, the proprietor. How to Start a Sole Proprietorship 1. Register the name of your business 2. Check and conform to regulations 3. Obtain any necessary licenses and permits. 4. Keep records and prepare tax forms. Compare some local businesses that are corporate owned and operated versus those locally owned and operated.

11 SOLE PROPRIETORSHIPS Advantages of Sole Proprietorships
Disadvantages of Sole Proprietorships 1. Easy start- up 2. Ease of decision making 3. Ownership of profits 4. Tax benefits 5. Intrinsic rewards 1. Burden of responsibility 2. Difficulty raising funds 3. Unlimited liability What does easy start-up mean? Who will get the profit in a sole proprietorship? Who will have to cover the loss in sole proprietorship? What are tax benefits? What is an intrinsic reward? Can those who work for someone else have these rewards? What are the burdens of responsibility? This is a good place to discuss the hours involved with starting your own business. Why is it difficult to raise funds? Define unlimited liability? Does this hurt the sole proprietor? Would this discourage individuals from setting up a new business?

12 PARTNERSHIPS A partnership is a for- profit business firm owned by two or more people, called partners, each of whom has a financial interest in the business. Small businesses like retail stores, restaurants and contractors may operate as partnership. Large law firms, medical practices and business consulting firms will most often be organized as partnerships. Speculate why large law firms, medical practices and business consulting firms organize as partnerships.

13 Advantages of Partnerships Disadvantages of Partnerships
1. Larger pool of financing 2. Shared decision making. 1. Unlimited liability for general partners 2. Disagreements among partners Why can a partnership raise a larger amount of financing? Would it be better in a partnership if each partner had a different type of skill, knowledge or experience? Ask the question “is it more difficult to have a partner or to manage a business on your own. Recall the unlimited liability discuss from previous slide.

14 A corporation is a business firm that is itself a legal entity.
Corporations A corporation is a business firm that is itself a legal entity. Owned by stockholders who purchase stock. The shares of stock represent ownership. A private corporation is owned by one person or a small group of individuals. Public corporations are held by many people and can be freely bought and sold. Is there a risk in holding share of stock of a corporation? Engage students in listing the names of as many corporations as they can. Share with each and then determine the product or service sold by these firms and whether they are privately or publicly held.

15 Advantages of Corporations Disadvantages of Corporations
1. Limited liability for stockholders 2. Ability to raise funds by issuing shares 3. Ability to raise funds by issuing bonds 4. Rapid growth 1. Expensive start- up costs 2. Delays in decision making 3. Low nonmonetary rewards 4. Divided ownership of profits 5. Tax treatment 6. More reporting requirements Contrast limited and unlimited liability. Discuss the differences between stocks and bonds. Stock shares represent ownership while bonds are corporate debt or liability. Why delays in decision making? What is meant by “Tax Treatment? Ask the class why corporations have a negative image in many films and shows?

Explain the one-star, two-star notation. Explain to the students that many corporations began as proprietorships.

Why do you think that so many more businesses are organized as sole proprietorships? Why do corporations make up the largest proportion of revenue?

A limited liability company (LLC) is a hybrid business organization that combines features of corporations, partnerships, and sole proprietorships. A business franchise consists of a parent company and numerous associated businesses that sell a standardized good or service. A cooperative, or coop, is a business owned by its members and operated to supply members and others with goods and services. A nonprofit organization is a legal entity formed to carry out a “not- for- profit” mission. Can the students name an example of each of these? LLC: Chrysler Group Franchise: McDonald’s, H&R Block, Dairy Queen, Domino’s Pizza Cooperative: Ace Hardware, Affiliated Foods (700 member stores), Land O’Lakes Discuss how these business organizations differ?

19 MODULE 20 REVIEW What is a… A. Sole proprietorship? B. Partnership?
C. Corporation? D. Corporate bond? E. Business franchise? F. Nonprofit organization? G. Limited liability company? H. Cooperative? Have the students add these terms to their vocabulary notebook. Make sure they are writing examples of each of the terms.

KEY IDEA: Business organizations have many avenues for growth. OBJECTIVES To explain how firms can grow by reinvesting profits. To identify sources of outside funding used for business growth. To recognize the role of mergers and acquisitions in business growth. Think in terms of how a business goes from its start in a garage to the size of a large global business organization. Go back to the entrepreneur list and discuss the beginnings of what today are major companies.

Explain how the reinvestment in capital is an important part of business growth. in this income statement, the Tutor Shop earned a profit of $ The owners have decided to use $2000 to go to more resources to expand the business. The owners received $500.

A firm can borrow funds by: …issuing and selling bond …issuing and selling new shares of stock. Review the concepts of ownership with stock shares vs. debt through bonds.

A merger occurs when two firms legally join together to form a single, larger firm. An acquisition is the purchase by one firm of a controlling interest in another firm. A horizontal merger combines two firms that produce the same type of product. A vertical merger combines firms that operate at different stages in the production of a good. Point out how some companies buy their competition by acquiring 51% of the shares of stock of the “target firms and some companies expand to new markets both in the US and globally..

A conglomerate is a single business enterprise formed by combining firms from unrelated industries. Point out the Disney is a great example of a conglomerate. What are some other examples? (3M, General Electric, General Motors, Honeywell International, Dow Chemical Company, Procter & Gamble, Viacom Inc.)

25 GOING GLOBAL A multinational corporation is a company that operates in more than one country. P&G is a multinational has its headquarters in the USA, but produces its products worldwide. Products such as these are sold around the world.

26 GOING GLOBAL Have students analyze the table and research what most of the companies have in common. Why are some many of the top ten oil companies? What does Walmart have largest number of employees.

27 MODULE 21 REVIEW What is… A. After- tax profit? B. Acquisition?
C. Income statement? D. Horizontal merger? E. Vertical merger? F. Depreciation? G. Conglomerate? H. Multinational corporation? Have the students add these terms to their vocabulary notebook. Make sure they are writing examples of each of the terms.

KEY IDEA: Increasingly, businesses are expected to pursue not only profits but the ethical treatment of workers, consumers, communities, and the environment. OBJECTIVES: To explain two viewpoints in the controversy over corporate responsibility. To describe how public scrutiny of business behavior has increased in modern times. To identify ways in which firms can make decisions about questionable behavior. Discuss the right and wrong behaviors of firms in the marketplace.

Business ethics is the examination of standards for “right” and “wrong” behavior by firms. Business Ethics in the 2000s: -Corporate Scandals -Financial Crisis of 2008 Discuss how perceptions of right and wrong business behaviors have evolved over time. What about high profits and large rewards on investment? What about the impact of business on many stakeholders in the economy—workers, consumers, investors, other businesses and local communities? Give examples of laws that have forced businesses to act more ethically.

Ethical businesses do the following… Develop a clear vision of company values and mission Publish a “code” of business conduct Conduct ethics training programs Reward employees who exhibit ethical behaviors Obey national and international laws. See if the students can see the correlation of ethics in business and rules in a classroom or school. Many teachers have posted a code of conduct for their classrooms. Many schools have a student handbook. What are they trying to achieve? Discuss the “good business sense” in ethical business practices. Attract honest and motivated employers Develop reputations that can survive and prosper in the long run Avoid litigation and government fines

Globalization is the broadening access to products, people, businesses, technology, ideas, and money across national borders to create a more integrated and interdependent global economy. Corporate social responsibility (CSR) refers to the duties and obligations corporations have to different stakeholders. Challenge students to think of ways that corporations have failed in their social responsibility.

32 MODULE 22 REVIEW What is… A. Business ethics? B. Globalization?
C. Corporate social responsibility? Have the students add these terms to their vocabulary notebook. Make sure they are writing examples of each of the terms.

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