Economics Chapters 3 5. Business Organizations and Supply and Demand.

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Economics Chapters 3 5. Business Organizations and Supply and Demand.

  1. 1. Chapter Three: Forms of Business Organizations
  2. 2. Sole Proprietorship Advantages  1. Easy to get started.  2. Ease of mtg.  3. One person gets all profits.  4. Ordinary taxes.  5. Easy to get out of business. Disadvantages  1. Unlimited liability.  2. Hard to raise money.  3. Size/Efficiency issues.  4. Hard to find employees. Why?  5. Limited life of co.
  3. 3. Partnerships: Two or More Owners Advantages  1. Easier to mtg.  2. Ease of est.  3. No corp. taxes.  4. Easier to get loans. Disadvantages  1. Fully responsible for other partner.  2. Potential for conflict.  3. Life of co. limited.
  4. 4. Corporations Advantages  1. Easier to raise money. Stocks/Bonds.  2. Professional mtg.  3. Limited liability.  4. Possible long life. Coke? Disadvantages  1. State charter.  2. Double taxation.  3. More government regulations.
  5. 5. How Can Corporations Grow?  1. Borrow money from banks.  2. Venture capitalists.  3. Reinvest profits.  4. Acquisitions.  4. Issue bonds.  5. Go public. Issue stock.  6. Have a merger.
  6. 6. Reasons for Corporation Mergers?  1. Better efficiencies. Walmart?  2. Acquire new product lines. Drug co.  3. Acquire copy rights or patents.  4. Eliminate rivals.  5. Get access to new/bigger markets. CVS?
  7. 7. Horizontal & Vertical Mergers  1. Horizontal: Two co. that are in the same business. Two banks become one. H.P. and Compac.  2. Vertical: A co. that owns a business from raw materials to finished product.
  8. 8. Conglomerates  1. A co. that owns at least four businesses that do unrelated things.  2. Examples: General Electric, Samsung, or Tyco.
  9. 9. Multinationals  1. A corporation that has markets and productions in two or more countries.  2. All conglomerates and any corporation of any size are multinational.
  10. 10. Other Organizations…  1. Non-Profits.  2. Cooperatives.  3. Labor Unions.  4. Professional assn. AMA.  5. Business assn.
  11. 11. Chapter Four  Microeconomics:  The study of individual elements of the economy with the study of consumer and business behavior.  Demand:  The desire, ability, and willingness to buy a product or service.
  12. 12. Demand Curve or Schedule Demand Curve  1. D.C. is the illustrated/graphic PICTURE that shows the relationship between demand and price. Demand Schedule  1. D.S. is a listing or table showing the relationship between price and demand.
  13. 13. What direction does the demand curve ALWAYS go? Down and to the right!
  14. 14. Law of Demand  1. Higher the price, the lower demand.  2. The lower the price, the higher demand.  3. Duhhhhhhhh!
  15. 15. Demand and Marginal Utility  Diminishing Marginal Utility: The more we have of any one item, the less value each INDIVIDUAL item has to us.
  16. 16. Shifts in Demand  1. A shift in demand is a major change in consumer spending for a good or service.  2. A shift in demand can be cause by many reasons, such as:
  17. 17. Factors That Affect Demand  1. Price.  2. Anticipation of FUTURE price.  3. Income.  4. Market size.  5. Compliments.  6. Substitutes.  7. Seasons.  8. Fads/Fashion.
  18. 18. Substitution Effect  1. Sustained high prices of a product will cause consumers to “Substitute” to another.  2. Japanese cars in the 1970’s.  3. Beef. Early 1970’s.  4. Coffee. Early 1980’s.
  19. 19. ELASTICTY OF DEMAND How sensitive is the product or service to price change?
  20. 20. What Determines Elasticity?  1. Can purchase be delayed?  2. Possible substitutes?  3. Is it a big chunk of your income?  4. Can a product change from inelastic to elastic?
  21. 21. Inelastic Demand  1. For some goods and services price do not affect demand.  2. Why does price not affect the demand for insulin or heart-by-pass surgery?  3. Does price have an impact paperclips?  4. What does an inelastic graph look like?
  22. 22. What is Supply? Supply  The amount that of a product or service that can be offered at all possible prices. Law of Supply  The higher the price paid, the more that producer will offer.
  23. 23. Supply Curve & Schedule Supply Curve  Graphic that shows all products offered at all possible prices. Supple Schedule  A listing or table of products offered at all possible prices.
  24. 24. What two direction does the supply curve ALWAYS go?  1.UP and to the right!
  25. 25. Changes in Supply  1. Cost of inputs.  2. Productivity.  3. Technology  4. Taxes and subsidies.  5. Expectations.  6. Gov’t regulations.  7. Number of sellers.

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