Capitalism: Quiz #3

Accumulation

Profit-driven investment, including the process of mobilizing, transforming, and exploiting the inputs required in a capitalist production & selling output

Social Organization in the Workplace

Based on a hierarchical job ladder that separates the owners and managers organized by property rights & the hire/fire powers from the workers organized by skill sets, education, wages and training.

• Hierarchy

• Property Rights

• Hire & Fire Powers

• Job Ladders (Wage/Skills)

• Old, New Middle Classes

• Labor Accord & Unions

(Connects to the Social Structures of Accumulation; the organizational structure of relations between capitalists & workers / government & economy; 2 phases include consolidation & decay; unions/classes)

Union

An organization of workers established with the intentions of providing a unified and stronger voice on behalf of the member’s interests.

Collective organization of employees seeking advocacy or negotiation representation for better working conditions and wages.

Main way for the workers to organize for collective advocacy in the workplace, often setting the pace for workplace standards at the national level by negotiating on the working environment and conditions on behalf of the employee. Acts as an effective source of pushback or representation for workers against management & capitalistic owners during conflicts.

Membership: 35% to 11% with 6.7% private sector & 37% public sector

Targets racial, gender, & ethnic groups; supported by women & minorities

Trendsetter for national labor market as a representative external force; SSA

Arose from Guilds & the Molly Maguire’s; legalized by the Wagner Act

(AFL-CIO: largest union; merged for better representation of blue-collar)

Homogenous Products

A commodity incapable of alteration; the exact same for all consumers

NO value added; influential on market as competitive price-setting standard

Rare to find as capitalism promotes “value added” through different brands, flavors, or versions (actions essentially diluting the product’s purity)

EX: gas; nearly impossible to “add” anything to change product’s value

Transaction

Describes a voluntary & mutually appropriate exchange of money for a product; commonly organized by common currency and quantity sought.

Barter

A transaction for a product without using money (may offer item/services)

Marginal Cost

Additional costs beyond necessary to produce 1 commodity/unit

(The increase in total costs incurred by a firm when increasing output by 1)

Average Costs

Amount it costs to produce products based on average of all units

The total cost of producing a certain number of units for a good/service divided by the total number of units produced (total costs / avg. costs of all)

Economies of Scale

Businesses large enough to lower the prices of making products and profits through capacity utilization; reserve of tools & resources lessen investment costs and fuel the process at a cheaper rate while still making more profits

(Exists when an increase in the number of units produced - an increase in scale - brings about a fall in the average costs to produce per unit/output)

Drives global economic growth but perpetuates monopolistic powers

Market Entrance

An opportunity for a business to shift toward another market; easier/cheaper

Market Failure

Takes place when the spontaneous interactions of buyers and sellers on markets each pursuing their own objectives result in outcomes that are different from the decision that society (as a whole) would have made if it had all of the appropriate information needed to make the choice.

Arises from external forces, information, and behavior

Prompts government involvement to re-guide & stabilize the economy

Externalities

Occur when some of the effects of a market exchange are not reflected in the price & are “external” to the participants in the exchange (side effect).

Outside influences changing the transaction terms (costs, information, rules); can prompt an increase of competition, success, OR market failure

Influences the (external) effects surrounding marketing on competition

EX: snow shovels are more expensive during a snowstorm

Private Costs

The costs borne by the user of a good or service (whether a person or a company), while the total costs borne by all members are social costs.

(Prices can only measure the private costs of a good or service)

Transactional; simply describes the costs to produce & sell

Social Cost

The costs of producing a good or service that are borne by society as a whole; often as an externality.

Describes side-effect impacts of a good/service on people & the commons

EX: negative: air pollution, second-hand smoke, alcoholism

EX: positive: education, voting, social research, re-cycling

Monopoly

1 large company gains enough leverage to control most resources and market prices for an industry or market; encouraged as an economy of scale UNTIL it becomes too big OR suffocates competition for other firms

Power: the ability of one or few firms in an industry to exercise substantial controls over the market price & other aspects of competition (by exclusion)

Creates a command mechanism on competition via costs/resources

Arises from unregulated economies of scale & fewer suppliers in market

Sherman Anti-Trust Act: governmental power to regulate & break-up

Oligopoly

A market situation in which several firms control the resources and prices of an industry for mutual benefit while excluding other firms from benefits

No 1 firm holds substantial monopoly power to absorb ALL controls 

Behavior (Norms)

Determines transactional outcomes as an underlying and constantly changing principle of markets; predicts consumer demands/coordinates

An underlying principle of markets transactions & coordination by helping to form, propel, & guide the invisible aspects of a market; dependent on geographical assets OR a group’s cultural customs; engrained in economy.

EX: US has no haggle barters BUT in Asia haggle barters are normal

Market Coordination

By Invisible Hand: info & voluntary behavior (self-interested preferences)

By Rules: interactions are governed by behavior principles (norms)

By Command: interactions are governed by specific orders

Coordination Failures

Occurs when markets or other types of coordination by rules fail to coordinate an economy for desirable results; depends on information

Market Disconnection: arises from misinformation OR misunderstandings of the producer/consumer; seller/buyer; & supply/demand relationships

EX: may overestimate demand OR misjudge consumer preferences

Kinds of Business

1. Distribution

2. Retailer

3. Service

Distribution Business

Describes the “middle-men” who buy products (often in bulk) from manufacturers to sell to the stores/retailers connecting to consumers.

Purchases products from manufacturing to store & sell to the retailers

EX: store suppliers; bread man; middle man; drop-shipper

Retail Business

The entity connecting products to consumers in a “marketplace” manner

Source of commercial profits by buying distributed products & hosting transactions with consumers in the marketplace organization (stores)

STORES; COMMERCIAL PROFITS: BUY & SELL to CONSUMERS ONLY

(No manufacturing or value added by stores; ONLY transactional)

Service Business

Buys distributed products (sometimes from the retailer) to provide assistance with a process to the consumer; EX: stock-broker, lawyer, taxman, waitress

Kinds of Profits

1. Surplus

2. Interest

3. Rent

4. Commercial

5. Capitalistic

Interest

Additional money made by imposing a tax/charge for lending money

(Like rent/taxes but on money instead of a tool, service, or product)

Surplus

Additional money made beyond necessary costs for production

Commercial Profits

No value is added to the products; money is made from buying & selling

Additional money made from altering transaction terms (adding charges to a product for convenience, storing, or contextual circumstance reasons)

Stores & retailers collect from buying & selling; main form of USA profits

Capitalist Profits

Profits arising from production profits; describes the money made from altering or adding additional value to a product for sale in chase for profits

(Manufacturing & extraction add value by creating/finishing resources)

Most of the US profits are based on service & retail; not ____________.

Kinds of Enterprise

1. Proprietorship

2. Partnership

3. Trust

4. Corporation

5. LLC

Proprietorship

Describes a business structure where 1 person owns and runs an unincorporated business; owner is entitled to all profits but remains responsible for any debts, losses, or liabilities arising from sold products

Owner is involved & personally liable for the production process

EX: artisans, mom & pop shops; lots/variety but make less profits

Partnership

An arrangement between two or more people to oversee business operations by sharing responsibility in decisions, profits, and liabilities.

EX: lawyers, doctors, professional services; shares profits with partner

Trust

Another person holds, manages, and organizes the property, assets, or finances for the benefit of another (the beneficiary/shareholders). The business structure often doesn’t have one traditional owner but operates for the shareholders using the investments provided by the shareholders.

By Nature: fiduciary, managerial, less risky, non-profit, & fewer in #

(EX: REI; my trust-fund; Stein’s political campaign fund; Super-PACs)

Corporation

A legal entity that is created to operate a business for profits; describes the organization of products, workers, & management. Same thing as a firm.

Main driver of modern capitalism in the United States; 80% of world wealth

• Has legal status to sue & defend (main way to protect a business)

• Separates management from owners (makes new middle class)

• Raises capital through stockholders that remains separate of traditional company liability (can sell stocks as reserve if needed)

• Can form an LLC to avoid direct responsibility for investors (asset attack)

LLC

A form of corporation made to reduce direct responsibility for liabilities or bad investments (separates the labor, management, owners, & investors)

Stockholders are less impacted by bad investments or company mistakes

(Limited Liability Corporation)

Liability

Responsibility for actions (as a stakeholder of a business)

Profit Margin

The percent of money made after taxes are made (surplus - expenditures)

(Amount of profit made after the necessary costs of taxes & tools are paid)

Return on Equity

What the owners & stockholders receive in return for company investments; returns available to the stockholders change daily

Describes the changes (in %) of profits made compared to money given by stockholders. Measures how well/often the company returns profit to stockholders; generally a good measure if between 15% and 20%

Equity

Return on Assets

What’s used to make the money; measures profits available after costs of tools, labor, & taxes; describes the costs of labor & tools compared to profit

Describes the profits made compared to costs of tools & people employed

Measures how efficiently the company uses tools & capital to return profits

(Can spend too much OR too little on tools, labor, and resources)

Return on Investment

What’s made in long-term; profits made from the initial capital investment

Describes the profits made from an initial investment for a project (annual)

Measures the profits an investment yields compared to it’s costs

(Describes the capital provided or allocated for parts of a project)

Price & Earnings Ratio

Ratio of earnings paid to stockholders compared to profits made by the company; describes how well the determinants of economic growth are manipulated to yield additional profits

Describes the price of a company’s stock compared to earnings or profit

Measures the company’s profit return rate; can be good or bad

Balance Sheet

Presents assets, liabilities and summarizes the worth of a corporation

Wages

Describes the money allocated to an employee in return for labor

Classifiable as a taxable income (like interest); 11/15 billion in US income

(Income taxes as US income mainly made from higher taxes on elite wages)

Trade Debt

The money a company owes to another business for goods or services

(Accounts payable; used to support other purchases; balance now & later)

Bank Debt

The money maintained for loans & account management; the long-term liability a business accepts when borrowing money through a loan/interest

Long-Term Debt

A liability or outstanding amount held by a company with an expected maturity or re-payment period ranging 12 months or longer (a loan for 1 year or more); used by companies for projects, buildings, land, & upgrades.

Tariffs

An additional government tax or cost on a product to control imports

(Seeks to yield revenue by enforcing trade barriers that de-incentivize imports and protect domestic markets from cheaper foreign resources)

(Seeks to make imported goods more expensive than local goods)

Economic Determinants

1. Price Competition

2. Monopoly Powers

3. Breakthroughs

Price Competition

Manipulates the dynamic equilibrium of supply and demand; may arise by: changing the component costs, buying company stock to change standing, altering the labor intensity to enforce cheaper costs, buying cheaper tools

A form or strategy of competition in which firms attempt to attract customers by offering generally lower prices.

Breakthroughs

Occurs when a firm discovers or develops a new method of doing business; such as a new way of organizing work, new product, or new market.

Changes the rules of the game by developing a new idea, process, tool or product; includes improvements/expansions to market via process/products

Can change the product a company sells & it’s standard value prices

Capacity Utilization

The ratio of the quantity of output a firm is actually producing to the quantity of output it could produce if resources were efficiently used.

Ratio regarding decisions on what’s more profitable and reasonable

Often describes overhead spread; needs error margin to prevent spillovers

Barriers to Entry

Competition prevents new businesses from entering the market/industry

Obstacles that make it more difficult or costly for new firms to enter the market; may include technological secrets, large investments, or marketing

Leads to more niche companies seeking to fill market segments/supply gaps

Management

New middle class; no ownership of labor/tools; simply manipulates the economic determinants of growth for a business (labor, tools, process)

Governance

Regulates big businesses to help grow/maintain the economy; often attempts to control the management workers or unfair playing fields

SOX Laws

Enforces criminal and civil accountability (charges) to management workers if responsible for manipulating the share-holders or company stock prices.

Conflict

1. Created by controls (& prompts changes)

2. Hierarchy: who holds power & controls the profits

3. Discriminatory / differing characteristics exploited

4. Reinforced by competition & workplace changes

5. Likely to prompt government involvement

Actions, changes, disputes or tensions arising between groups, nations, individuals, (bosses and workers), due to competition and control over who holds the power to hire, fire, and enjoy the profits. (Discriminatory origin likely to prompt government regulations).

(Sources: wages, work intensity, working conditions, hire & fire power, classes, control, job ladder, hierarchy, competition, changes)

Deskilling

Simplifying and segmenting a job to one skill or focus (dumbing down the job) to make workers more replaceable or less valuable as it becomes easier to find cheaper labor, training and replacements. Leading to less employee benefits, more outsourcing, and changes to social structure of accumulation.

Speedups

Subtle methods to cut out needless time or costs in the profit procedure

EX: slowly increasing the speed of the conveyor belt; 1 employee for 2-3

Lockout

The temporary denial of employment or employee access by an employer during a labor dispute; may involve physically locking employees out of the building, suspending work, lay-offs, changing locks; or denying an employee to online/account access. (Let em starve; seeks to enforce worry about bills (creates sense of employee desperation prone to lower negotiation standards by locking out negotiation terms).

Runaway Shop

A factory that moves from 1 area to another; often prompted by conflicts with the current location/unfavorable terms such as taxes, regulations, and higher costs of living. (Promotes off-shoring, outsourcing, and tax havens).

Can move for economic reasons but can’t move only to dissolve an union

Parallel Plant

A method of controlling competition conflicts by creating an alternative or copycat production plant (employs similar procedure for similar product).

EX: Off-Brands; Generic; Great Value; Foreign “Duplicate” Products

EX: Epipen/Insulin: gov made generic company to compete with monopoly

Molly-Maguire’s

Irish Immigrants of the steam & coal mining industries that moved to Pennsylvania; eventually sparking violent uprisings & conflicts (unions)

Wagner Act

Made unions legal, established the National Federal Labor Board and began government regulations of conflictual components of an internal workforce

Sherman Anti-Trust Act

Law allows government to enforce trust-busting by regulating monopolies

Simple Control

Managements “stand over workers” using negative punishment (whips; fire threats; demotion) to enforce _____ over workers; often lower paying (dead-end) jobs with less loyalty.

Technical Control

Actions by management to enhance business productivity often via technology improvements/changes such as new tools, incentives, or gradual methodology changes. (Seeks to use innovative tools and methods to change the work environment for more profits and less expenses).

EX: Assembly lines, Deskilling & Speed-Ups, Amazon/Online Shopping

Bureaucratic Control

A method of managing an organization using formal systems of rules, roles, records and rewards to influence employee behavior and assess employee performances. Often enforces hierarchical job ladders using the carrot and stick competition approach of enticement, rewards, promotions, bonuses and gradual increases to work intensity in return.

(Controls the businesses growth model. Organizes the labor accord & describes the current social structure of accumulation. Can experience internal and external influences. Gives belief that more work during competition means higher changes of a promotion/reward.)

Job Ladder

A hierarchy of labor positions for internal company operations; usually organized by HR using classifiable names, skills & training sets)

Segmentation; Primary; Independent; Subordinate; Secondary

Separation of Conception from Execution

Individuals “think of an idea” & other individuals “complete the action”

Can occur with resources, innovation, engineers, & management

Conception: planner, architect & designer

Executor: laborer, wage employee; blue collar

Value Added

Product becomes capitalistic through alterations via labor or changes (method, branding, function).

Differs from homogenous products; describes capitalist profits

Smith: (added) labor is the basis of wealth for capitalism

Systems of Control

1. Simple

2. Technical

3. Bureaucratic

Technology

A shift in procedure, labor, or tool organization (often prompted by an innovative desire to produce more profits at a lower expense). An improvement for efficiency often via new procedure, labor or tools.

Changes who owns product, does the work, & how big production gets

EX: Slaughterhouses: tech shifts led to slaughterhouses moving away from the Mississippi River (Wood River, IL area) to Western farm areas (Kansas)

(Can prompt an economy of scale if capacity utilization is combined)

Discrimination

A method of organizing workers by differential characteristics, often causing unfair treatment or prejudice affecting the employee. Can be used as an exploitative control by managers during conflict to increase the chances of a manager winning as they pay, hire and fire based on ages, race, gender, and educational viewpoints.

Profitability

Refers to how much profit is derived from the labor process

Fixed Costs

Costs that a business pays regularly and that do not vary when the total # of units for output produced varies.

Non-Price Competition

Involves sales efforts, style changes, or other marketing strategies to increase the appeal of a product without lowering the overall price

Market Share

One firm’s sales as a percent of the total shares for an industry

Stock

Represents a share of ownership in the corporation & entitles holder to dividends

Dividends

A payment per share decided by the board of directors; whenever a corporation decides to payout portion of total profit as dividends to holders

Retained Earnings

Part of the total profit that a corporation does not pay out as dividends; kept for a future investment (or other business purposes)

Unit Materials Cost

The portion of the average cost of producing each unit of output that is spent on materials used in produce the output + wear & tear on machines/tools used to produce.

Total costs of materials & wear/tear on machines divided by # of units made

Efficiency of Labor

Refers to how much output can be produced as result of certain levels of work effort

Laissez-Faire

An approach to economic policy that advocates a very limited role for the government; confining activities to national defense & the enforcement of laws/contracts

Market Exchange

A transfer to another party of the title to a good or of the right to receive a service, in return for some form of payment on mutually accepted terms.

Market

Refers to all buying & selling activities of persons willing to trade a good or service as long as the price is within an acceptable range; consists of suppliers potentially wanting to sell & demanders potentially wanting to buy.

Competitive Market

Those with many actual OR potential demanders & suppliers

Supply Curve

Indicates, for each possible price, how much of the good or service suppliers wish to sell.

Market Clearing Price

The price at which buyers want to purchase exactly the quantity sellers seek to sell.

Equilibrium

Refers to a situation where price & quantity balance out by experiencing no forces internal to the situation pushing for one to change.

Supply Influences

Technology; input costs; alternative opportunities for profit; # of producers

Demand Influences

Consumer preferences; incomes/income distribution; alternative products; alternative prices; market choices; # of potential buyers

Demand Curve

Indicates, for each possible price, how much of the good or service the demanders are willing and able to buy.

Competition

The horizontal dimension of economics; refers to aspects of economic relationships in which voluntary exchange & choice among a large # of buyers & sellers play the predominant roles.

Independent Production

An economic system in which the producers own the capital goods needed in production process and primarily rely on their own labor for production.

(EX: proprietorships; artisans)

Long Swings

Occurs over a period of 30-50 years; the first part generally coincides with "consolidation” phase of a SSA and is characterized by the relatively high rates of investment, economic growth, and low unemployment. The remainder of the long swing is associable with the “decay” phase of an SSA, characterized by an era of economic stagnation & low investment.

Labor Accord

An informal organization of jobs and industry standards

Since the 1990s, emphasizes manufacturing and union jobs by enforcing that a blanket regulation that industry standards must be the same for all jobs in the country (even if not in an active/participant union).

Popular in labor-intensive jobs; less impact from globalization (labor can be bought cheaper at lower standard of consistency/quality; undercut accord)

Layoffs

Refers to a firm’s temporary or permanent dismissal of workers for any several of reasons.

Work Effort

Refers to a worker’s level of exertion (intensity of work) on the job during a certain period of time, such as an hour.