Business Foundations UARK Test 1

Private Enterprise (Free Enterprise) Requirements:

1. Private Property

2. Freedom of Choice

3. Fair Competition

4. Right to Keep Profits

Profit

- total revenue - total cost

- incentive for risk taking

- reward for success in meeting society's needs

- profit is the 1st duty of every business- (survival)

Uncertainty and Risk

________ refers to things we do not know, while ________ is the likelihood of an adverse occurrence.

Opportunity Cost

value of the thing you gave up to choose something else

ex. Sarah & Elizabeth

pick Sarah to marry over Elizabeth

Elizabeth is your opportunity cost

Factors of production

inputs to outputs

Inputs

1. Natural Resources (land, forest, minerals)

2. Capital (money, tools to do the job)

3. Human Resources (physical, intellectual work)

4. Entrepreneurship (creative risk taking)

Outputs

1. Goods (tangible)

2. Services (intangible)

Productivity

- ratio of input/output

- how much inputs needed to make output

*more productive to make more outputs w/ less inputs

Competitive Advantage

- what sets you apart from other competitors

- must seek a competitive advantage

Economics

the study of how society manages its scarce resources

Scarcity

_______ is the fundamental economic problem of having seemingly unlimited human wants and needs in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs.

Supply, Demand, and Price

- If supply is low and demand is high then the price goes up

- If supply is high and demand is low then the price goes down

- Eq price: supp & demand intersect

supply

The amount of goods available

demand

Consumer willingness and ability to buy products

Macro

_______ is the part of economics concerned with large-scale or general economic factors, such as interest rates and national productivity.

NATIONAL/INTERNATIONAL LEVEL

Micro

______ the part of economics concerned with single factors and the effects of individual decisions.

INDIVIDUAL FIRM/ PERSONAL

Invisible Hand Theory

The _________ ______ Theory is a belief that individuals seeking their economic self-interest actually benefit society more than they would if they tried to benefit society directly

Command Economy

a _________ economy is an economy in which production, investment, prices, and incomes are determined centrally by a GOVERNMENT

Mixed Economy

a _________ ________ is an economic system combining private and public enterprise.

Gross Domestic Product (GDP)

the total $ value of goods produced and services provided in a country during one year.

Inflation

A general rise in the level of prices.

CAUSE: increase in money supply

The Business Cycle

The recurrence of periods of growth and recession in a nations economic activity

4 states:

1. peak (prosperity)

2. recession

3. trough

4. recovery (expanssion)

Monopoly

A market (or industry) with only ONE seller and there are barriers to keep other firms from entering the industry

Oligopoly

a market or industry in which there are only a FEW sellers

conflict of interest

a conflict between self-interest and professional obligation

- I'm doing something for my business that benefits me personally

Nepotism

__________ is the practice among those with power or influence of favoring relatives or friends, especially by giving them jobs.

-hiring/promoting relatives

Sexual Harassment

1. Quid Pro Quo

2. Hostile Work Environment

quid pro quo

something given in exchange or return for something else (sex in return for a promotion)

hostile work environment

lewd jokes, displaying pornography, making sexually oriented remarks about someone's personal appearance, and other sex-related actions that make the work environment UNCOMFORTABLE

cultural context

The values, attitudes, beliefs, orientations, and underlying assumptions prevalent among people in a society

-What's ethical vs what's illegal

Social Responsibility

The recognition that business activities have an impact on society

ex: environment

fair pay/ benefits

training

transparency

Equal Employment Opportunity Commission

a government agency with the power to investigate complaints of employment discrimination and the power to sue firms that practice it

Equal Employment Opportunity

The equal right of all citizens to the opportunity to obtain employment regardless of their gender, age, race, country of origin, religion, or disabilities.

Benefits of global trade

Each country can produce and export goods and services in which it has a comparative advantage and import goods and services in which it doesn't. Advantages of global trade include specialization, economic growth and reduction of global conflict.

Benefits of global trade

1. increased jobs and incomes

2. access to resources

3. lower prices

4. more product choice

5. most valuable use of resources

Restrictions to global trade

1. tariff

2. quota

3. embargo

4. currency devaluation

Tarriff

a tax or duty to be paid on a particular class of imports or exports.

Quota

A limit placed on the quantities of a product that can be imported

Embargo

an official ban on trade or other commercial activity with a particular country.

currency devaluation

the lowering of a currency's price in terms of other currencies

World Trade Organization (WTO)

powerful successor to GATT that incorporates trade in goods, services and ideas

International Monetary Fund

an International bank with 188 member nations that makes short term loans/grants to developing countries experiencing balance of payment deficits

World Bank

an international bank that offers low-interest loans, advice, and information to developing nations

Absolute Advantage

The ability to produce a specific product more efficiently than another nation.

Comparative Advantage

the ability to produce a specific product more efficiently than any other product

example of trade agreement

NAFTA/GATT

Methods of operating internationally (entering int. bus.)

1. exporting/importing

2. licensing/franchising

3. acquisition

4. joint venture

5. totally owned/multinational firms

Public vs Private ownership

1. sole proprietorship- PRIVATE

2. partnership- PRIVATE

3. corporation- PUBLIC

Limited Liability

_________ _________ is where a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership. If a company with this is sued, then the claimants are suing the company, not its owners or investors.

Unlimited Liability

Indefinite extent of liability to pay a firm's debts or obligations, extending beyond the investments of the firm's owner(s), partners, or shareholder(s) to their personal assets.

Sole Proprietorship

owened and operated by ONE person

Sole Proprietorship PROS

-east to start

-simple to operate

-few external controls

-profits are taxed as personal income

Sole Proprietorship CONS

-unlimeted liability

-succession

-limited access to capital

-limited growth potential

Partnership

owned and operated by 2 or more people

Partnership PROS

-no double taxation

-simple to start and operate

-few external controls

-skills and capital of more than 1 person

Partnership CONS

-mutual agency

-unlimited personal liability

cannot sell without partner consent

-succession

Corporation pt 1

-legal entity independent of any person

-corporation= "body" or person

Corporation pt 2

a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.

stockholders:

owners of a corporation

stockholders choose

board of directors

board of directors choose

CEO

C Corporation (BIG CORP)

PROS:

-limited liability

-easy succession

-ability to raise capital

-easy to sell

CONS:

-double taxation

-complex & costly to start

-many outside controls

-loss of control to other owners

S Corporation (SMALL CORP)

PROS:

-limited liability

-no double taxation

-successioin

-easy to sell

CONS:

-max of 100 individual shareholders

-extra legal requirements

-loss of control to other owners

Limited Liability Company (LLC) HYBRID

PROS:

-limited liability

-no double taxation

-simplified reporting requirements

-capital formation

CONS:

-cant sell w/o consent of partners

-succession

-loss of control to other owners

stock

A share of ownership in a corporation.

dividend

The portion of corporate profits paid out to stockholders (owners)

Capital Gains and Losses

arise from the ownership of a corporation when an individual sells a share at a price higher (lower) than when the share was purchased

tax advantages

succession advantages

Small Business Administration (SBA)

a government agency that assists, councils and protects the interests of small businesses in america

characteristics of entreprenuers

1. entreprenural spirit

2. independance

3. desire to determine ones own destiny

4. willingness to find & accept a challenge

5. family background

6. age

business plan

a formal written document that describes the nature of a business and how it will operate

Purpose of a business plan

-It serves as a reality check for the entrepreneur who will be forced to think about every aspect of operating the business

-It is an operating guide for the business

-It is a statement of intent for interested third parties

PROS & CONS of big business

small: agile/versatile/faster

financing options

1. equity financing

2. debt financing

Steve Jobs

fired from own company

pixar

next computers

begged for him back

Entrepreneurship

CREATION of a business

Franchisor (BRAND)

The company that allows an individual (known as the franchisee) to run a location of their business. The franchisor owns the overarching company, trademarks, and products, but gives the right to the franchisee to run the franchise location, in return for an agreed-upon fee. Fast-food companies are often franchised.

Franchisee (OWNERSHIP)

-an individual or company that holds a franchise for the sale of goods or the operation of a service

-gets profit

Franchisor (Why)

it's expensive. Franchisee makes investment.

OWNS NAME

Franchisee (Why)

established name. automatic built in business

OWNS BUSINESS