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TYPES OF BUSINESSES BUSINESSES ARE STRUCTURED IN THREE BASIC WAYS TO EARN A PROFIT NON PROFIT ORGANIZATIONS TOO Chapter 22 Business and Labor PROPRIETORSHIP BUSINESS OWNED & OPERATED BY A SINGLE PERSON – MOST COMMON TYPE Beauty salons, cleaners, pizza restaurants – 72% of businesses are proprietorship graph page 601 – Relatively simple-can you earn money mowing lawns? Advantages v Disadvantages Advantages – Ease of starting & going out of business – Control over profits & business operations – Pride of ownership – Lower taxes (no Corporate taxes) Disadvantages – Unlimited liability – Difficulty in raising funds or financial capital – Responsible for all losses – Management knowledge may be limited Partnership Business owned by two or more individuals Structure more difficult Two kinds of partnership – General partnership – all partners are responsible for management and financial obligations – Limited partnership – one partner is not active in running daily operations – Article of Partnership: legal agreement specifying how much money each of you will contribute and what role each partner will play in the business Advantages and Disadvantages Advantages – Easier to raise financial capital or funds – Partners may combine managerial skills – Personal satisfaction – Lower taxes Disadvantages – Unlimited liability – Shared profits – Possible conflicts with partners – Possible instability after death of partner Corporations A business owned by stockholders and has rights and responsibilities as if it were a person or one entity – It can be sued – It can sue – It pays taxes Corporations structure Apply for state or federal charter to open as corporations Sell stock to raise money – Different types of stock Common/Preferred/Corporate Bonds Stockholders own stock and help make decisions about who will run the business: board of directors and CEO through their proxy Advantages and Disadvantages Advantages – Limited liability – Greater financial capital – Unlimited life – Specialized management Disadvantages – Increased taxation – Corporate taxes on profits – Difficulty in starting each state has its own rules for a corporate charter – May be larger, more bureaucratic than other forms of businesses – Increased government regulation and control Other business organization Non profit organizations like charities Cooperatives: Pee Dee Electric: a voluntary association of people formed to carry on an economic activity that benefits its members. LABOR UNIONS WORKERS BAN TOGETHER TO: 1. BETTER PAY/BENEFITS 2. BETTER WORKING CONDITIONS 3. 14% OF WORKERS ARE UNION MEMBERS TYPES OF UNIONS CRAFT/TRADE UNIONS – WORKERS PREFORM THE SAME SKILL PLUMBERS UNION; PRINTERS UNION INDUSTRIAL UNIONS – DIFFERENT TYPES OF WORKERS FROM THE SAME INDUSTRY AUTO WORKERS UNION; TEAMSTERS – LOCAL UNIONS – factories, companies – NATIONAL UNIONS – example American Federation of Labor-Congress of Industrial Organizations – INTERNATIONAL UNIONS THESE CAN BE EITHER CRAFT OR INDUSTRIAL (Mexico, Canada) UNION ARRANGEMENTS CLOSED SHOP: – FIRST JOIN UNION TO BE HIRED UNION SHOP: – HIRE THEN JOIN UNION SHORT AFTER RIGHT-TO-WORK LAW: N.C. & 21 other states – PREVENT MANDATORY UNION MEMBERSHIP REQUIRED BY THE UNION SHOP MODIFIED UNION SHOP: – DOES NOT REQUIRE UNION MEMBERSHIP TO BE HIRED OR TO KEEP JOB, BUT UNION MEMBERS MUST REMAIN IF THE DECIDE TO JOIN AGENCY SHOP: – WORKERS REQUIRED TO PAY FEE TO UNION TO REPRESENT THEM NEGOTIATIONS COLLECTIVE BARGAINING: – PROCESS BY WHICH UNIONS & BUSINESSES WORK OUT TERMS FOR EMPLOYMENT FOR ALL WORKERS WAGES, BENEFITS, HEALTH CARE, HOLIDAYS, WORKING CONDITIONS, CHANGING RULES GETTING OUTSIDE HELP– MEDIATION: THIRD PARTY TO HELP REACH COMPROMISE – ARBITRATION: THIRD PARTY TO MAKE DECISION AFTER HEARING BOTH SIDES LABOR – MANAGEMENT CONFLICT STRIKE: – ALL WORKERS IN A UNION REFUSE TO GO TO WORK LOCKOUT: – CLOSE AND LOCK DOORS UNTIL WORKERS ACCEPT THE BUSINESS’ CONTRACT BLACK LISTING: – PLACE NAME ON LIST & PASS TO OTHER BUSINESSES OF WORKERS THAT CAUSE PROBLEMS BOYCOTT: – REFUSE TO BUY THE BUSINESS’S PRODUCTS BUSINESSES IN OUR ECONOMY ROLES OF BUSINESSES ACT AS: – CONSUMERS –BUY GOODS AND SERVICES FROM OTHER BUSINESSES – EMPLOYERS –PROVIDE JOBS FOR WORKERS (WAGES) – PRODUCERS –GOOD OR SERVICES – FOOD, CLOTHING, SHELTER, CARS, MOVIES, APPLIANCES RESPONSIBILITIES: DIFFERENT RESPONSIBILITIES TO DIFFERENT GROUPS AND SOME ARE SPELLED OUT BY LAW – TO CONSUMERS: SAFE AND WORKING PRODUCTS, HONEST ADVERTISING, FAIR TO ALL – TO OWNERS: TRANSPARENCY – PROCESS OF PUBLISHING FINANICAL INFORMATION – EMPLOYEES: SAFE WORKING CONDITIONS, TREAT FAIRLY WITHOUT DISCRIMINATION – COMMUNITY: SOCIAL RESPONSIBILITY- PURSUE GOALS THAT BENEFIT SOCIETY AS WELL AS THEMSELVES EXAMPLE: GIFTS TO CHARITIES ROLE OF GOVERNMENT GOVERNMENT PLAYS SEVERAL ROLES IN OUR ECONOMY Chapter 23 Government and the Economy ROLES: PROVIDING GOODS & SERVICES THAT PRIVATE BUSINESSES DO NOT PROVIDE DEAL WITH EXTERNALITIES – The unintended side effect of an action that affects someone not involved in the action (positive and negative) MAINTAIN COMPETITION REGULATE MARKET ACTIVITIES PROVIDING PUBLIC GOODS & SERVICES PRIVATE GOODS PRODUCED BY PRIVATE SECTOR GOODS/SERVICES THAT WHEN CONSUMED BY ONE INDIVIDUAL CANNOT BE CONSUMED BY ANOTHER EXCLUSIONARY RULE EXAMPLES – INSURANCE, HAIRCUTS, MEDICAL SERVICES, AUTO CARE, TELEPHONE SERVICES PUBLIC GOODS PRODUCED BY GOVERNMENT GOODS/SERVICES THAT CAN BE CONSUMED BY ONE PERSON WITHOUT PREVENTING THE CONSUMPTION OF THE GOOD BY OTHERS NON EXCLUSIONARY RULE EXAMPLES – PUBLIC PARKS, PUBLIC LIBRARIES, MUSEUMS, HIGHWAYS, STREET LIGHTING DEALING WITH EXTERNALITIES UNINTENDED SIDE EFFECTS OF AN ACTION THAT AFFECTS SOMEONE NOT DIRECTLY INVOLVED IN THE ACTION – Positive – negative TYPES OF EXTERNALITIES POSITIVE EVERYONE BENEFITS NASA’S NEED FOR SMALL COMPUTER EXTERNALITY: WE NOW HAVE SMALL PERSONAL COMPUTERS AND OTHER SMALL ELECTRONICS NEGATIVE CHEMICAL COMPANY DUMPS WASTE TO KEEP COST DOWN PEOPLE GET CANCER ROLE OF THE GOVERNMENT TO PREVENT THESE AND OTHER KINDS OF NEGATIVE EXTERNATILIES. MAINTAINING COMPETITION MONOPOLY: SOLE PROVIDER OF A GOOD OR SERVICE – MARKET CONTROLLED BY THE MONOPOLITIC COMPANY NO COMPETITION – COMPANY CAN CHARGE ANY PRICE IT WANTS – QUALITY MAY BECOME SHODDY – BECAUSE YOU HAVE TO BUY IT NO OTHER OPTIONS GOVERNMENTS JOB TO PREVENT MONOPOLIES ENACTS ANTITRUST LEGISLATION – SHERMAN ANTITRUST LAW BANDED MONOPLIES AND OTHER FORMS OF BUSINESS THAT PREVENTED COMPETITION – DISPERSED STANDARD OIL IN 1911 – DISPERSED AT&T IN 1980S – CLAYTON ACT PROHIBITED OR LIMITED A NUMBER OF BUSINESS PRACTICES THAT LESSNED COMPEITION – FOR EXAMPLE:CHARGING HIGH PRICES IN AN AREA WHERE LITTLE COMPETION EXISTED HOW MONOPOLIES FORM MERGERS ARE A COMBINATION OF TWO OR MORE COMPANIES INTO ONE SINGLE ONE IF THIS THREATENS COMPETITION THE GOVERNMENT WILL NOT ALLOW JUSTICE DEPT. OR FEDERAL TRADE COMMISSION WOULD STOP OR PREVENT FROM MERGING – VERTICLE MERGER – HORIZONTAL MERGER REGULATING MARKET ACTIVITIES GOVERNMENT WANTS TO REDUCE NEGATIVE EXTERNALITIES SO THEY REGULATE SOME ACTIVIITES HEAVILY – SAFETY OF PEOPLE REGULATORY AGENCIES CPSC –Consumer Product Safety Commission EPA-Environmental Protection Agency EEOC -Equal Employment Opportunity Commission FAA -Federal Aviation Administration FCC –Federal Communications Commission FERC -Federal Energy Regulatory Commission FTC –Federal Trade Commission FDA –Food and Drug Administration NLRB –National Labor Relations Board OSHA-Occupational Safety and Health Administration SEC -Securities and Exchange Commission THREE AREAS OF GOVERNMENT ATTENTION NATURAL MONOPOLIES – A MARKET SITUATION IN WHICH THE COSTS OF PRODUCTIONS ARE MINIMIZED OR LESSON BY HAVING SINGLE FIRM PRODUCE THE PRODUCT. ADVERTISING PRODUCT SAFTEY – RECALL THE BUSINESS CYCLE THE UPS AND DOWNS IN THE ECONOMY IS THE BUSINESS CYCLE. THE GRAPHS ON PAGES 638, 640 & 642 ARE EXAMPLES Foldable On the inside include information about each phase of the business cycle. Use pages 638-639 to help you 5/23/2017 Free template from www.brainybetty.com 30 Answers 5/23/2017 Expansion -real GDP rising -usually lasts longer than recessions Peak -Real GDP up -Peak point-economy producing at full ability -Unemployment rate down Contraction -economy slowing down Trough -when real GDP down for 6 straight months. -usually last for about a year -unemployment rate up 31 Free template from www.brainybetty.com PHASE 1: EXPANDING PROSPERITY MORE GOODS MADE BUSINESSES HIRING FACTORIES BUYING MORE AND PRODUCING MORE AND SELLING MORE PHASE 2: PEAK TOP OF PRODUCTION BEST TIME FULL EMPLOYMENT LOW UNEMPLOYMENT PHASE 3: CONTRACTION DECLINING SHRINKING ECONOMY LESS GOODS PRODUCED LAYING OFF OF WORKERS PHASE 4: RECESSION LOWEST POINT LOW EMPLOYMENT HIGH UNEMPLOYMENT BUSINESS PRODUCING VERY LITTLE BUSINESSES START TO CLOSE DOWN TWO CONSECUTIVE GDP DECLINING QUARTERS DEFINED AS RECESSION LONG RECESSION = DEPRESSION 5/23/2017 Free template from www.brainybetty.com 36 GOVERNMENT INTERVENTION IN ECONOMY FISCAL V MONETARY POLICY FISCAL POLICY: ACTION TAKEN BY THE U.S. LEGISLATURE TO HELP SLOW OR SPEED UP THE ECONOMY MONETARY POLICY: ACTION TAKEN BY THE FEDS (NATION’S REGULATING BANK) TO SLOW OR SPEED UP THE ECONOMY THE DIFFERENCE: SLOW ECONOMY DOWN ACTIONS FISCAL: TAXES OR SPENDING MONEY RAISE TAXES DISCONTINUE GOVRENMENT SPENDING ON VARIOUS PROJECTS MONETARY POLICY – INCREASE INTEREST RATE TO COMMERCIAL BANKS – INCREASE AMOUNT NEED IN RESERVES FOR COMMERCIAL BANKS – GOV SELL BONDS IN OPEN MARKET OPERATIONS THE DIFFERENCE: SPEED ECONOMY UP FISCAL POLICY MONETARY POLICY – LOWER TAXES – SPEND MONEY MONEY ON GOVERNMENT PROJECTS – LOWER INTEREST RATES – LOWER THE FED RESERVE RATE FOR COMMERCIAL BANKS – GOV BUY BONDS IN OPEN MARKET OPERATIONS MEASURING ECONOMIC PERFORMANCE THE GOVERNMENT DOES THIS BY LOOKING AT SEVERAL INDICATORS ABOUT THE ECONOMY: – MOST IMPORTANT ONE IS GDP – TOTAL OF ALL FINAL GOODS AND SERVICES PRODUCE IN A COUNTRY IN ONE YEAR – IF GDP DECREASES FROM ONE YR TO NEXT: – IF GDP INCREASES FROM ONE YR TO NEXT: MEASURING CONTINUED THE SECOND INDICATOR THE GOVERNMENT LOOKS AT IS PERSONAL INCOME: – THE TOTAL AMOUNT OF MONEY A PERSON MAKES EACH YR CONTINUED THE THIRD INDICATOR THE GOVERNMENT LOOKS AT IS DISPOSABLE INCOME: – THE MONEY PEOPLE HAVE TO SPEND ON GOODS AND SERVICES MEASURING ECONOMY HELPS DEFINE THE STANDARD OF LIVING KEEP A REGISTER ON INFLATION: – THE GENERAL RISE IN PRICES OF MOST GOODS AND SERVICES TRIES TO PREVENT INFLATION TO HELP KEEP STANDARD OF LIVING HIGHER THROUGH FISCAL AND MONETARY POLICY Government Economy & you The government becomes involved to help keep equality in tact in the USA. 1. Income inequality Why do some people make more money than others? #1 reason education levels College grad twice as much as high school grad Fed government tries to get more to improve education levels Free lunches, grants, low interest loans #2 reason wealth: Redistribution of wealth (taxes) #3 reason discrimination Women & minorities earn less then men Glass ceiling ideal Government intervention Passed several laws to help sitution Equal Pay Act 1963 Requires equal pay for jobs that require equivalent skills and responsibilities Civil Rights Act 1964 Bans discrimination on the basis of gender, race, color, religion, and national origin Americans with Disabilities Act 1990 Extended this protection to people with physical and mental disabilities Poverty very bottom of income scale Government intervention Welfare programs: Food Stamps: USDA WIC Medicaid Income assistance programs SSI: Social Security TANF: Temporary Assistance to Needy Families (limited time) Workforce programs Require recipient to work for pay III. Taxation Policies Government help poor through taxation Progressive taxes: tax that increases with income Regressive taxes: tax that remains the same Earned income tax credit EITC give tax credits and often cash payments to qualified workers (redistribution of money in USA)
