2. Taking care of bidness.  “The business of America is business.” – President Calvin Coolidge.

3. Section 1 Vocabulary   Sole proprietorship   proprietorship   unlimited liability   inventory   limited life   partnership   limited partnership   bankruptcy   corporation   charter   stock   stockholder   shareholder   dividend   bond   principal   interest   double taxation*

4. 3 Types of Business’s   Sole proprietorship   Partnership   Corporation.*

5. Proprietorship A sole proprietorship is a business run by one person. It is the smallest type of business organization in size, yet the most numerous and profitable. *

6. Proprietorship - Advantages   Ease of start-up   Ease of management   Owner gets all the profits   Business itself pays no income taxes   Taxes only on the owner’s personal income   Psychological satisfaction of owning one’s business   Ease of closing the business.*

7. Proprietorship -Disadvantages Owner has unlimited liability Hard to raise financial capital Owner may not be able to hire enough personnel or stock enough inventory to operate efficiently Owner may have limited managerial experience Hard to attract qualified employees Business has limited life and legally stops existing when the owner dies or sells the business.*

8. Partnerships   A partnership is a business jointly owned by two or more persons.   It is the least common type of business.   Second smallest proportion of sales and net income.*

9. Types of Partnerships   General partnerships - all partners are involved in the management and finances.   Limited partnership - at least one partner is not involved in management. This partner may have helped to finance the business.   Articles of the partnership document spell out how the partners divide up the profits or losses.*

10. Partnerships - Advantages   Ease of start-up   Ease of management   No special taxes on a partnership   Easier to raise capital through bank loans or new partner   Larger size aids efficient operations   Easier to attract skilled employees*

11. Partnerships - Disadvantages   partners are responsible for the acts of each and every partner (except in a limited partnership where the limits are spelled out)   limited life of partnerships ends if a partner leaves   potential for partner conflicts*

12. Corporations   A corporation is a business organization recognized by law as a separate legal entity with all the rights of an individual.*

13. More corporations   Corporations receive a charter, or government permission to create a corporation, which includes details about stock ownership.*

14. More corporations… Investors who buy common or preferred stock in a corporation become owners of the firm. Usually common stock has voting rights while preferred stock has first claim to earnings and assets.*

15. Corporate Advantages   Ease of raising capital   Professionals may run the firm instead of the owners (shareholders)   Owners have limited liability   Business’s life is unlimited   Easy to transfer ownership.*

16. How they work   Typical Structure   A board of directors, elected by owners of common stock, sets broad policies and goals.   The board hires a professional management team to run the business on a daily basis.*

17. How it works

18. Corporate Disadvantages   Charter is expensive   Ownership and management are separated so shareholders have little say in running the business   Corporate income is taxed twice   Subject to government regulation*

19. The Bigguns Each year, Fortune magazine provides a list of the top 500 U.S. companies, called the “Fortune 500.” The companies are ranked by sales revenue. In 2002, the top ten companies were: 6. Citigroup 7. Chevron Texaco 8. International Business Machines 9. American International Group 10. Verizon Communications 1. Wal-Mart Stores 2. General Motors 3. Exxon Mobil 4. Ford Motor 5. General Electric Source: Fortune Magazine

21. Will this be you?

23. Market Structure Section 2 Section 4

24. Chapter 7 Section 1 Vocabulary  Laissez-faire  market structure  perfect competition  imperfect competition  monopolistic competition  product differentiation  nonprice competition  oligopoly  collusion  price-fixing  monopoly  natural monopoly  economies of scale  geographic monopoly  technological monopoly  government monopoly

25. Laissez-faire  Remember Adam Smith  The philosophy that government should not interfere with commerce or trade  Literally means “allow them to do”  Under laissez-faire, the role of government is confined to protecting private property, enforcing contracts, settling disputes, and protecting businesses against increased competition from foreign goods

26. Finding Market Structure  Today, economists classify markets according to conditions that prevail in them.  How many buyers and suppliers are there?  How large are they?  Does either have any influence over price?  How much competition exists between firms?  What kind of product is involved–is everyone trading the exact same product, or are they simply similar?  Is it easy or difficult for new firms to enter the market?

27. Market Structure  market structure, or the nature and degree of competition among firms operating in the same industry.  Economists group industries into four different market structures–perfect competition, monopolistic competition, oligopoly, and monopoly.

29. Competition and Market Structures

30. Perfect Competition  Perfect competition is when a large number of buyers and sellers exchange identical products under five conditions  There should be a large number of buyers and sellers.  The products should be identical.  Buyers and sellers should act independently.  Buyers and sellers should be well- informed.  Buyers and sellers should be free to enter, conduct, or get out of business.

31. Perfect Competition Contd..  Under perfect competition, supply and demand set the equilibrium price, and each firm sets a level of output that will maximize its profits at that price.  Imperfect competition refers to market structures that lack one or more of the five condition of perfect competition.

32. Monopolistic Competition  Monopolistic competition meets all conditions of perfect competition except for identical products  Monopolistic competitors use product differentiation

33. Monopolistic Competition Contd.  Monopolistic competitors sell within a narrow price range but try to raise the price within that range to achieve profit maximization.  Monopolistic competitors use nonprice competition, the use of advertising, giveaways, or other promotional campaigns to differentiate their products from similar products in the market

34. Oligopoly  Oligopoly is a market structure in which a few very large sellers dominate the industry.  Oligopolists typically prefer non price competition.

35. Collusion Oligopolists may all agree formally to set prices, called collusion, which is illegal (because it restricts trade).  Two forms of collusion include:  price-fixing, which is agreeing to charge a set price that is often above market price  dividing up the market for guaranteed sales.

36. Oligopoly Contd...  Oligopolists can engage in price wars, or a series of price cuts that can push prices lower than the cost of production for a short period of time.  Oligopolists’ final prices are likely to be higher than under monopolistic competition and much higher than under perfect competition.

37. Monopoly  A monopoly is a market structure with only one seller of a particular product.  The monopolist is larger than a perfect competitor, allowing it to be the price maker versus the price taker

38. Natural and Geographic Monopolies  Natural monopoly occurs when a single firm produces a product or provides a service because it minimizes the overall costs (public utilities).  Geographic monopoly occurs when the location cannot support two or more such businesses (small town drugstore).

39. Technological and Government Monopolies  Technological monopoly occurs when a producer has the exclusive right through patents or copyrights to produce or sell a particular product (an artist’s work for his lifetime plus 50 years)  Government monopoly occurs when the government provides products or services that private industry cannot adequately provide (uranium processing)

41. Insert Quiz Here! Yesssssssssssssssssssssss!!!!!!!!!!!!!!!!!!!!!!!!!