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Four types of markets (most to least competitive)
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Perfect competition
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Unit 2 Test
| Term | Definition |
|---|---|
| Four types of markets (most to least competitive) | Perfect competition, Monopolistic competition, Oligopoly, Monopoly |
| Perfect competition | There are many buyers and many sellers that sell identical products - Sellers are price takers - Low barriers to entry -> LOTS of competition |
| Monopolistic Competition | There are a large number of sellers offering products that are similar but are distinct from the competition - Sellers have some control over prices - Low barriers to entry -> many sellers |
| Oligopoly | There are a few, large sellers offering the same or similar products - High Barriers to Entry -> low competition - Sellers have some control over prices |
| Monopoly | There is only ONE seller with a unique product - The seller is a price setter - High barriers to entry (very difficult & expensive) |
| Market Power: | The ability of producers to influence prices. |
| Negative Externalities occur when… | production causes a cost to society that is not paid by the producer or consumer |
| Positive Externalities occur when… | production leads to external benefits to outsiders, while the producer and consumer pay all of the costs |
| Public Goods | goods and services that are not provided by the markets because of the difficulty of getting people who use them to pay for their use. |
| What are the 3 main types of business organizations? | Sole proprietorship, Partnership, & Corporation |
| Sole Proprietorship - Advantages | - Easy to start (less paperwork) - Full decision-making power - Owner keeps all profits - Few restrictions - Easy to close down |
| Sole Proprietorship - Disadvantages | - Unlimited liability - Limited life: business ends with the owner leaving - Limited growth potential: less attractive to investors or lenders |
| General Partnership | all owners have unlimited liability |
| Limited Partnership | one general partner and 1+ limited partners w/ limited liability (silent partners who invest $ but don’t actively run the business) |
| Limited Liability Partnership (LLP) | co-owners act like general partners while having the protection of limited liability. - Used when all partners want an active role in managing the business |
| Partnership - Advantages | - Easy to start (less paperwork) - Shared decision-making - Few restrictions - Specialization by partners - More growth potential - Individual taxation (no business taxes) |
| Partnership - Disadvantages | - Unlimited liability for general partners - Conflict between partners - Continuity issues - if one partner leaves |
| A corporation is a legal entity with its own separate powers from its owners that are... | - A corporation can enter into contracts, buy and sell property. - Corporations are owned by shareholders who purchase shares of company stock. Selling stock can bring the company money to grow. |
| Corporation - Advantages | - Limited liability - Growth Potential - Professional management - Long life (As legal entities, corporations have permanence, even after the owner moves on) |
| Corporation - Disadvantages | - More regulation - record keeping and reporting - Complex start-up - paperwork, rules of governance, stock certificates - Loss of control - less control for founder(s) - Double taxation - pay taxes on corporation profits and personal income taxes |
| Unlimited Liability: | owner can be sued for personal assets to cover the debts of the business |
| Limited Liability: | Owner can only lose the money they invested in the business |
| Corporation - Board of Directors: | governing body elected by the shareholders. The board oversees management of the corporation. |
| Corporation - Middle Management. | Includes vice presidents, department heads, and other managers responsible for supervising the day-to-day activities of the firm's workers. |
| Corporation - Corporate officers | senior executives who oversee specific areas of the business. |
| Corporation - CEO (Chief executive officer) | the highest-ranking person in charge of management. |
| Marginal Product: | Addition to Total Product of 1 more worker |
| How to Find: Marginal Product | Difference between each output |
| Total Cost = | variable cost + fixed cost |
| Marginal Cost: | cost for making one more product |
| How to Find: Total Revenue | Total revenue = amount sold x price per unit |
| Marginal Revenue: | extra revenue from selling one more of a product (price) |
| Franchise: | Parent company grants the exclusive rights to sell its products at one location to an independent business - Franchisee (Business owner) pays an initial fee and a percentage of the profits to the Franchiser (parent company) -Easily replicated product |
| Multinational Corporations: | a corporation that does business in more than one country |
| Multinational Corporations - Advantages over other firms | - Access to more markets- greater growth potential - Less likely to go bankrupt than a firm in just one market. - Access to cheaper labor and raw materials in other countries |
| Nonprofit Organization: | an organization that functions like a business but does not operate to make a profit; they focus on public or private goals- such as human rights, the environment, or medical research |
| Nonprofit - Foundations | created and supported with donations. Support for charitable causes. |
| Nonprofit - Professional Associations | promote interests of people working in a certain profession |
| Nonprofit - Trade Associations | represents the interests of people working in a particular industry. |
| Nonprofit - Business Associations | support the interests of business people in a geographical area |
| Nonprofit - Labor Unions | an organization of workers in a specific industry that seeks to improve working conditions, wages, and benefits |
| Collective bargaining | is a process in which workers, represented by their union, negotiate with employers for better wages and working conditions. |
| Cooperatives | a business organization that is jointly owned and operated by a group of individuals for their mutual benefit |
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