Economics Chapter 7 and Reading Packet – Flashcards
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3 forms of businesses
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sole proprietorships; partnerships; and corporations
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most common type of business
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sole proprietorship
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Advantages of a sole proprietorship
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freedom to enter and exit the market freely; freedom from outside control; freedom to retain information; freedom from paying excessive taxes; freedom from being an employee
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disadvantages of a sole proprietorship
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unlimited peronal financial liability; limited management and employeeskills; limited life; limited availability of money
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2 forms of partnerships
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general and limited
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disadvantages of partnerships
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unlimited finanacial liability; uncertain life; conflicts between partners
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sole proprietorship
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business firm owned by 1 person -freedom
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3 examples of a sole proprietorship
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chimney cleaning; lawn care; part time sales business out of home
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most popular form of business in america
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sole proprietorship- 74%
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partnership
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business enterprise owned by 2 or more people
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least popular form of business in america
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partnerships- 8%
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advantages of a partnership
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greater management skills; greater chance of keeping competent employees; greater sources of financing; and ease of formation and freedom to manage
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disadvantages of a partnership
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unlimited personal financial liability; uncertain life; conflicts between partners
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creditor
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lender to whom a debt is owed
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surety
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one who obligates himself to pay debts of another (aka surety)
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limited partnership
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partnership with atleast 1 general partner who has unlimited personal financial liability and decision making responsibility and at least 1 partner
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limited partner
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partner who has no management responsibilites and no liabilities in the firm other than his total investment
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corporation
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business entity recognized by the government as seperate from its owners or stockholders
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private corporation
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corporation owned by private citizens
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public corporation
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corporation owned by general public and managed by the government
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stock
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shares or portions of ownership in a corporation
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advantages of corporation
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limited personal financial liability of stock holders; experienced management and specialized employees; continuous life; and ease ion raising financial capital
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how does a person buy part of a business?
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by buying stock
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disadvantages of a corporation
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higher taxes; greater government regulation; lack of secrecy; impersonality; and rigidity
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what is the difference between a limited partnership and a general partnership?
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in a general partnership every owner is financiall liable but in a limited partnership only one or some of the owners are financially liable
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primary advantage of an incorporation
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limited personal financial liability of stockholders
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laissez faire
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no gov intervention
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private enterprise economy
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economy where people are allowed to own and run their own businesses wit ha limited amount of gov regulation
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factor markets
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markets where productive resources are bought and sold
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product markets
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markets where goods and services are offered for sale by producers
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market structure
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nature and degree of competition among firms operating in the same market
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pure competition
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market situation where there are many independent and well informed buyers and sellers of exactly the same economic product
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imperfect competition
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all market situationsthat lack 1 or more of the characteristics of pure competition
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monopolistic competition
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making a product a little differetn in order to attract more customers and take over economic market
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product differentiation
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small differences in products
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oligopoly
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market situation where there are only a few very large sellers of a given economic product
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price fixing
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agreeing to charge the same or similar prices for a product
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monopoly
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market situation in which there is only one seller of a particular economic product
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natural monopoly
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kind of monopoly where competition is not desirable or technically possible
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franchise
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when company in public utility industries is given permission to act as natural monopoly
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geographic monopoly
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having only a certain number of 1 type of business because the area is too small for more
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technological monopoly
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situation in which firm or individual has discovered new manufacturing technique or invented something new
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patent
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an exclusive right to manufacture use or sell any new or useful thing
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copyright
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gives author or artist exclusive right to publish sell or reproduce his work for life + 50 years
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government monopoly
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activity owned and operated by gov which may be found at all levels of gov.
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economy of scale
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the larger the firm the more efficiently the plant and equipment may be used
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trusts
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legally formed combinationsof corporations or companies
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sherman antitrust act
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act to protect trade and commerce against unlawful restraint and monopoly - 1st significant law against monopolies
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clayton antitrust act
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outlawed price discrimination- gave gov greater power against monopolies
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price discrimination
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charging customers different prices for the same product
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robinson- patman act
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said companies could not offer special discounts to certain customers
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3 important things businesses do when competing with eachother
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1. give the goods and services the public wants 2. provide jobs 3. distribute the nations scarce resources so that the greatest benefits are brought to the most people
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what is a private enterprise economy
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individuals earn incomes from factor markets (where productive resources are bought and sold) and in return spend their incomes in product markets (where goods and services are sold)
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what does the circular flow of economic activity illustrate?
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how money, resources, businesses, and consumersare linked together by economic markets
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who and what are the main participants in the circular flow of economic activity?
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individuals, businesses, money, goods, services, and factors of production
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how does an economist classify market structures?
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according to the conditions that prevail in them (# of firms, what products, etc.)
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how do economists determine conditions in market structures?
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by answering wuestions such as "how many suppliers are there?", "how large are they?", "do they have influence over the price?", "what kind of economic product is onvolved?", "is it hard or easy for new firms to enter the market?", etc.
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least control vs most control over prices
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what are the 4 market structures recognized by economists
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pure competition (small- truck farming), monopolistic competition, oligopoly (few- car manufacturing), and monopoly(most- restaurants)
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5 conditions needed before a market can be purely competitive
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1. large # of buyers and sellers 2. identical economic products 3. each buyer and seller act independentally 4. buyers and sellers be reasonably well informed about article for sale and market involved 5. buyers and sellers be free to enter, conduct or get out of business
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why is pure competition a theoretical situation
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all 5 rarely exist at the same time
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what are the characteristics of monopolistic competition?
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product differentiation and narrow price range
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what are the important features of an oligopoly?
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few, large sellers of a product, can easily effect market prices, methods of cooperation
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vocab from last quiz
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4 kinds of monopolies found in american economy
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natural, geographic, technological, government
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monopoly problem
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imperfect competition, only producers of a product
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4 solutions to the monopoly problem
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consumer resistance, gov restraints, gov regulation, gov ownership
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why are there restrictions on economic freedom?
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to bring about more efficient use of resources
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example of public corporation
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library of congress
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example of private corporation
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winco foods
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which market has to rely on product differentiation the msot?
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monopolistic competition
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which type of market is most common in the US?
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monopolistic competition
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which market comes closest to a perfectly competetive market?
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truck farming
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airlines are which type of market?
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oligopoly
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telphone company is which type of market?
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natural
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price fixing at times has relied on this type of market?
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oligopoly
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retail business is what type of market?
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monopolistic competition
