BUSA 101: Quiz 1 – Flashcards
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Business Goal
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Profit
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Tangible Products
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A tangible item like a car, computer, phone, coat, etc.
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Intangible Products
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A service. (A machine or people provide or process something of value to a customer) Dry cleaning, a checkup, etc.
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Supply
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Number of products that businesses are willing to sell at different prices at a specific time
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Demand
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The number of goods and services that consumers are willing to buy at different prices at a specific time
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Communism
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First described by Karl Marx as a society in which the people, without regard to class, own all the nation's resources. Everyone contributes according to ability and receives benefits according to need.
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Socialism
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An economic system in which the government owns and operates basic industries (post office, utilities, healthcare, banking, etc.) but individuals own most businesses.
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Capitalism (free enterprise)
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an economic system in which individuals own and operate the majority of the businesses that provide goods and services. Competition, supply, and demand determine what products and services are produced. (THE US IS MODIFIED)
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Mixed
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Economies made up of elements from more than one economic system
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Economic Expansion
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The situation that occurs when an economy is growing and people are spending more money; their purchases stimulate the production of goods and services, which in turn stimulates employment.
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Economic Contraction
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A slowdown of the economy characterized by a decline in spending and during which businesses cut back on production and lay off workers
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Recession
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A decline in production, employment, and income
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Depression
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A condition of the economy in which unemployment is very high, consumer spending is low, and business output is sharply reduced
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Inflation
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A condition characterized by a continuing rise in prices
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Profit
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The difference between what it costs to make/sell a product and what the customer pays for it
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Stakeholder
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Groups that have a stake in the success and outcomes of a business (page 5)
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Economics
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The study of how resources are distributed for the production of goods and services within a social system
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Equilibrium Price
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The price at which the number of products that businesses are willing to supply equals the amount of products that consumers are willing to buy at a specific point in time.
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Pure Competition
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The market structure that exists when there are many small businesses selling one standardized product (ex: wheat, corn, cotton)
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Monopolistic Competition
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The market structure that exists when there are fewer businesses than in a pure competition environment and the differences among the goods they sell are small (ex: vacuum cleaners and pain killer medicine)
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GDP
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Gross domestic product- the sum of all goods and services produced in a country during a year
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Sole Proprietorship
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Businesses owned and operated by one individual. Most common form of business in the USA.
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Advantages of a Sole Proprietorship
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Owned and operated by one person Ease and cost of formation Secrecy Flexibility Govt. regulation Taxation
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Disadvantages of a Sole Proprietorship
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Unlimited liability Limited source of funds Limited skills
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Advantages of Partnership
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Combined knowledge and skills Decision making
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Disadvantages of Partnership
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Business responsibility (responsible for others' actions) Distribution of profits Limited source of funds
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Corporations
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a legal entity, created by the state whose assets and liabilities are separate from its owners
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Dividends
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the divided up sum of all profit left after all the corporation's other obligations have been paid
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Public corporation
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Has stock that anyone can buy, sell, trade. (AT)
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Private corporation
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Owned by just one or a few people who are closely involved in managing the business. These people (often family) own all of the businesses stock. Many are quite large but remain private (Cargill, Mars, Publix)
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Preferred stock
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A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.
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Common stock
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Stock whose owners have voting's rights in the corporation, yet do not receive preferential treatment regarding dividends.
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International Public offering
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Selling a corporation's stock on public markets for the first time
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Merger
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Two companies combine to form a new company
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S corporation
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Corporation taxed as though it were a partnership with retractions on shareholders.
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Acquisition
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The purchase of one company by another, usually by buying its stock
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Leverages Buyout
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A purchase in which a group of investors borrows money from banks and other institutions to acquire a company using the assets of the purchased company to guarantee repayment of the loan
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Joint Venture
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A partnership established for a specific project for a limited time. Control can be shared equally, or one owner can make all of the decisions. Popular in situations that call for large investments
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Entrepreneurship
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Process of creating and managing a business
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Small business administration
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An independent agency of the federal government that offers managerial and financial assistance to small businesses
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Benefits of small business in economy
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Vital to the American economy 99% of all US firms are classified as small businesses They employ 50% of private workers Fuel job creation Provide opportunities for women and minorities to succeed In the past 17 years 65% of new jobs annually were created by small businesses MAJOR: their ability to innovate and bring significant benefits to customers (small firms are responsible for more than half of all innovations)
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Advantages of a small business
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Independence: Being your own boss, lots of freedom to choose who you work with, where you work, when you work, etc. Costs: Lower start up costs, less expensive to run. Flexibility: Adapt to changing market demands, decisions can be made quickly due to one management layer (owners) Focus: Focus efforts on a defined market niche, large corporations compete in the mass market or for large market segments. Smaller firms can develop products for particular groups of customers. (Fatheads example pg. 157) Reputation: Can develop enviable reputations for their service and quality. (Kendra Scott customer service)
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Disadvantages of a small business
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High Stress Level: Does not make you an instant millionaire, at all. (There are some exceptions) Ongoing worries about expanding, competition, etc. High Failure Rate: Half of all new employer firms fail within the first 5 years. (Vulnerability to competition from larger companies, insufficient funds to withstand slow sales, burdens imposed by government regulations, etc.)
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Undercapitalization (a reason small businesses fail)
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Undercapitalization: The lack of funds to operate a business normally. Shortest path to failure. Enough money to get started, isn't enough to stay started.
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Reasons small businesses fail
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Undercapitalization Managerial Inexperience or Incompetence: Poor management is another cause of small business failure. Just because an entrepreneur has a brilliant vision, it doesn't mean they have the knowledge to manage a growing business effectively. Inability to Cope with Growth: Growth sometimes requires the owner to give up some control and that can be hard for the owner. ("The greatest impediment to the success of a business is the entrepreneur")
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Business Plan
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The key element of success... A precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals.
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Equity Financing
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Bringing forth personal assets
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Debt Financing
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New businesses sometimes borrow more than half of their financial resources. Banks are the main sources of external financing to small businesses
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Franchise
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A license to sell another's products or to use another's name in business,or both.
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Franchiser
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The company that sells a franchise
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Franchisee
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The purchaser of a franchise
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Functions of money
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Medium of exchange Measure of value Store of value
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Characteristics of money
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Acceptability Divisibility Portability Stability Durability Difficulty to counterfeit
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CD (Certificates of deposit)
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savings accounts that guarantee a depositor a set interest rate over a specified period of time as long as the funds are not withdrawn before the end of the period of time
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Commercial banks
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largest and oldest, rely mainly on checking and savings accounts as their major source of funds, JP Morgan Chase (largest commercial bank behind Bank of America)
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Credit unions
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a financial institution owned and controlled by its depositors, who usually have a common employer, profession, trade group, or religion. (example: Aggieland credit union provides baking services for faculty and current/ former students of Texas A
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Mutual savings bank
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similar to savings and loans associations but like credit unions, are owned by their depositors
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Pension funds
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managed investment pools set aside by individuals or corporations to provide retirement income for members (IRA)
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Federal deposit insurance corporation
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insures individual bank accounts, was established in 1933 to help stop bank failures during the GD
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Brokerage firms
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buy and sell stocks, bonds, and other securities for their customers
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Money market account
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similar to interest bearing checking accounts, but more restrictions. Limited number of checks each month
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Federal reserve board
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the guardian of the american financial system. Organized into 12 regions, each with a Federal Reserve Bank that serves it's defined area
