Unit 7B: Explain how changes in the level of competition can affect price and output levels. In a Free Enterprise, Free Market, Capitalistic Economic System you find different types of businesses. 1. Sole Proprietorship 2. Partnership 3. Corporation 4. Franchise

Types of Businesses Sole Proprietorships: Business owned by a single person or a married couple. 75% of businesses in the US are proprietorships. ◦ Advantages: full control, sole receiver of profits, easy to start. ◦ Disadvantages: limited access to physical capital, unlimited liability= must pay for all of the firm’s losses.

Partnerships: Two or more owners Advantages: Owners share the income and losses. Disadvantages: limited liability-both partners share in liability. In a limited partnership one partner may bear the brunt of losses. In equal partnership both bear equally. Advantage: Shared decision making, specialization and larger pool of capital.

Corporation: Several people come together and pool resources to form a corporation. Advantage: The company is one entity: the company is the one that bears the liability. Corporations act as individuals Disadvantage: owner has no control: Decisions are based on Board of Directors, CEO and others who make up corporate board.

1. Owners receive stock in return for investment in company. Each share of ownership is interest in the company. 2. The stock holder receives one share on income paid out by the corporation or a dividend. 3. Corporations also raise capital by selling bonds or money the firm owes to people who lend it money. 4. Both stocks and bonds can be bought and sold in the stock markets. 5. The decisions made in the company on long term goals for the corporation are made by the Board of Directors. They hire a CEO, and President to run day to day operations of the business.

Franchise Franchises are not a form of business but a license to operate as another business. The owner of a franchise has partial ownership but so does the parent company. What is financial capital? The money needed to run and invest in a business.

Cooperatives Voluntary associations that perform economic activities to benefit its members: Examples ◦ REI ◦ SECU-State Employees Credit Union ◦ Costco ◦ Some insurance companies

Non-Profits Institutions or organizations that are in the business not to make profits. ◦ Churches ◦ Some hospitals ◦ United Way ◦ American Red Cross ◦ Charitable foundations ◦ Any revenue available after bills are paid is reinvested back into the organization.