Unit 3 Economics

the most prevalent type of stock

common stock

a set of investment assets owned by an individual

portfolio

not true ownership of a corporation

preferred stock

excessive rising stock prices due to expected rises in prices

speculative bubble

a rising stock market in which investors are buying stock

bull market

a group of stocks purchased by individuals and managed by a professional

mutual fund

a falling stock market in which investors are selling stocks

bear market

the organization that helps a business issue stock to the public for the first time is a(n)

investment bank

businesses sell stock to the public primarily to

obtain additional financial capital

the price of a stock tends to reflect information and expectations about

the company's profitability

a dividend payment is based on the

company's profits

which stock exchange is entirely electronic with no face-to-face trading?

the NASDAQ

which is the most well-known stock index?

the DJIA

the most respected stock exchange in the world is the

NYSE

the DJIA is an index of

30 major US producers of goods and services

the index that includes all the stocks on the NYSE is the

NYSE Composite Index

actively buying and selling stocks for the purpose of profiting from short-term changes in their prices is called

speculation

what does the abbreviation IPO stand for?

initial public offering

what does over-the-counter trading lack that other stock exchanges have?

NASDAQ doesn't have a physical location

what term describes a group of stocks that are listed together with their prices combined and reported together?

stock index

what does the abbreviation SEC stand for, and what is the SEC's principal function?

securities and exchange commission

what is a person called who works for an investment firm and specializes in the buying and selling of stocks? what does he receive that can be either a flat rate or a percentage of the value of the stock trade?

stock broker; comission

individuals purchase stock mainly for two reasons. which would be the primary reason for you to purchase stock and why?

to make money, because it can make you rich and you would want periodic dividend payments each quarter.

who was the creator of the DJIA, and who was his partner (please give first and last names)? what well-known business publication did they start?

Charle Daw and Edward Jones; Wall-street Journal

should Christians invest in the stock market? give at least three biblical principles and support your conclusions with scripture.

yes; stewardship, love for God, and love for others.

monopoly

an industry made up of one firm

oligopoly, duopoly, and monopoly

barriers to enter the industry

perfect competition

undifferentiated products

oligopoly

three competitors

imperfect competition

possesses "reasonably complete" information about the market

perfect competition

very easy to enter and exit the industry

oligopoly

may form a cartel to control price

imperfect competition

relatively easy to enter and exit the industry

monopoly

may be either legal or natural

a. coffee mug manufacturers

which of the following is an example of an industry?

a. coffee mug manufacturers

b. Federal Communications Commission

c. General Motors Corporation

d. Illinois Department of Highways

a. jewelry

which of the following products has the greatest potential for differentiation?

a. jewelry

b. milk

c. lumber

d. corn

d. governmental regulations

which of the following would be considered an artificial barrier to entry?

a. incompetent managers

b. inability to raise necessary money

c. an oligopoly

d. governmental regulations

c. oligopoly

under which form of competition would firms most likely resort to corporate spying to gain information on competitors?

a. perfect competition

b. imperfect competition

c. oligopoly

d. monopoly

b. imperfect competition

a restaurant in Los Angeles would probably be categorized under which form of competition?

a. perfect competition

b. imperfect competition

c. oligopoly

d. monopoly

d. AT&T

which of the following firms enjoyed a monopoly until the government forced its break up in 1982?

a. IMB

b. ITT

c. GMC

d. AT&T

b. antitrust

what one word is synonymous with the government's desire to minimize monopolistic power and to ensure competition?

a. industry

b. antitrust

c. interlocking

d. tying

e. discrimination

market

the arrangement people have developed for trading with one another.

Joan Robinson

the concept of imperfect competition was developed by who?

Andrew Carnegie

what wealthy philanthropist of the nineteenth century wrote, "The man who dies... rich dies disgrace"?

number of firms, product differences, control of price, and entering/ exiting the industry

list the differences used to identify one industry from another?

utility companies

give an example of a type of business that it a legal monopoly.

Sherman Act of 1890

what was the first antimonopoly legislation passed in the United States?

differentiated products

visibly different from one firm to another

undifferentiated products

products that are exactly alike regardless of which firm produced them

relative ease

the phrase economist use to describe the level of difficulty that firms experience when trying to enter or exit an industry under imperfect competition.

synergy

when the total is greater than the sum of parts

interlocking directories, tying contracts, anticompetitive takeovers, and price discrimination

what did the Clayton Act of 1914 prohibit?

Federal Trade Commission

what does FTC stand for?

soybeans; milk

example of an undifferentiated product

imperfect competition

what is the most prevalent form of competition today in America?

interlocking directorate

a situation that reduces competition in an industry by placing one or more directors of a business on the boards of competing firms.

tying.

agreements used by suppliers to force smaller companies into granting them exclusive rights

Clayton Act of 1914

a congressional act passed in 1914designed to enumerate and clarify certain anticompetitive practices.

artificial

a type of barrier to entry caused by government regulations.

duopoly

an oligopoly composed of two businesses.

natural

a type of barrier to entry that occurs when other firms own all vital resource.

perfect

what competition is the type of organization in which a very large number of sellers sell an identical product, no seller is able to affect the price, and sellers find it relatively easy to enter the market?

natural

what type of monopoly exists because of favorable costs conditions or because one firm owns or controls 100% of some resource vital to an industry?

legal monopoly

a situation that exists because the government allows one firm the exclusive right to produce a good or service.

barrier to entry

condition that prevents a new firm from entering an industry and competing on an equal basis with established firms.

there is only one owner

sole proprietorship

every owner's financial liability is limited to his investment

corporation

owners own shares of the business

corporation

the owner is totally liable for the debts of the firm

sole proprietorship

if the owner dies, the business dies as well

sole proprietorship

most american business firms are of this type

sole proprietorship

this type claims the fewest number of american business firms

partnership

which of the following is not an advantage of the sole proprietorship form of business ownership?

- unlimited financial liability

- ease in entering and exiting the market

- freedom to be one's own boss

- ability to keep business information secret

unlimited financial liability

which of the following questions is not answered by a general partnership agreement?

- who are the partners?

- what is each partner responsible to do?

- how are the profits to be divided?

- what is the degree of financial responsibility each partner will bear?

what is the degree of financial responsibility each partner will bear?

what is probably the greatest disadvantage of a partnership?

total personal financial liability for each partner

if a corporation has one million shares outstanding and you wish to own one-tenth of the firm, how many shares must you purchase?

100,000

a corporation that is owned by the public and managed by the government is called a _____________ corporation.

public

which of the following most correctly follows the corporate organizational structure?

stockholders -> board of directors -> president -> senior vice presidents

the sole proprietorship is a very popular form of business ownership. currently, about ______ of America's businesses are sole proprietorships.

75%

a sole proprietorship is responsible to pay all obligations of the firm, even if it requires him to use his own funds. your text refers to this responsibility as ____________________________________________.

personal financial liability

when speaking of a partnership, one is usually referring to a ______________ partnership.

general

list four advantages of the partnership form of business ownership.

greater management skills, greater retention of competent employees, greater sources of financing, ease of formation and freedom to change

in what way is being a general partner in a business the same as being a surety?

both involve pledging to under take another's debt should something happen

what is the primary advantage of the corporate form of business ownership?

limited personal financial stability of stockholders

read three of the following scripture passages and explain how they are related to business ownership: Luke 14:28-29, James 4:13-15, 2 Corinthians 6:14, Proverbs 11:15 and 17:18, and Matthew 7:12.

These talk about the costs it takes to start and run things like businesses, the profit you will earn from working hard on your business, the power of partnerships, etc.

Sole Proprietorship

A business firm that has one owner - Most popular form of business ownership in the U.S. - gives the owner the most freedom of any type of business

Advantages of Sole Proprietorship

Freedom to enter and exit the market easily

Freedom from outside control

Freedom to retain information

Freedom from paying excessive taxes

Freedom from being an employee

Disadvantages of Sole Proprietorship

Unlimited personal financial liability

Limited management and employee skills

Limited life

Limited availability of money

Creditor

The lender of a loan - someone to whom a debt is owed

Partnership (or General Partnership)

A business enterprise with two or more persons as the owners

Advantages of Partnership

Greater management skills

Greater retention of competent employees

Greater sources of financing

Ease of formation and freedom to manage

Disadvantages of Partnership

Unlimited personal financial liability (both partners)

Uncertain life

Conflicts between partners

Has the shortest lifespan of all business types

Surety

The act of becoming security for or pledging to undertake another's debt

Two Forms of Partnership*

General Partnership (all partners are fully responsible for the financial decisions of each other) and Limited Partnership (limited partners avoid full financial liability in exchange for less input in the management and decision-making)

Corporation

A separate entity created and recognized by law - business is its own organization separate from the owners - type of business that is most subject to government regulation

Private Corporations

Corporations that private citizens own i.e. Coca Cola

Public Corporations

Corporations owned by the general public and managed by the government i.e. Amtrak

Stock

Pieces of a company that can be bought

Advantages of Incorporation

-*Limited personal financial liability

-Experienced management and specialized employees

-Continuous life

-Ease in raising financial capital - more likely to get a low-interest loan (lower risk) and can sell more stock to raise money

Disadvantages of Incorporation

-Higher taxes & double taxation of earnings

-Greater governmental regulation

-Impersonality - due to large size

-Rigidity - the organizational structure makes it difficult to respond quickly to the market