Economics - Ch. 3 Vocab

sole proprietorship

unincorporated business owned and run by a single person who has rights to all profits and unlimited liability for all debts of the firm; most common form of business organization in the United States

unlimited liability

requirement that an owner is personally and fully responsible for all losses and debts of a business; applies to proprietorships, general partnerships

inventory

stock of goods held in reserve; includes finished goods waiting to be sold and raw materials to be used in production

limited life

situation in which a firm legally ceases to exist when an owner dies, quits, or a new owner is added; applies to sole proprietorships and partnerships

partnership

unincorporated business owned and operated by two or more people who share the profits and have unlimited liability for the debts and obligations of the firm; same as general partnership

limited partnership

form of partnership where one or more partners are not active in the daily running of the business, and whose liability for the partnership’s debt is restricted to the amount invested in the business

bankruptcy

court-granted permission to an individual or business to cease or delay payment on some or all debts for a limited amount of time

corporation

form of business organization recognized by law as a separate legal entity with all the rights and responsibilities of an individual, including the right to buy and sell property, enter into legal contracts, sue and be sued

charter

written government approval to establish a corporation; includes company name, address, purpose of business, numbers of shares of stock, and other features of the business

stock

certificate of ownership in a corporation; common or preferred stock

stockholder

person who owns a share or shares of stock in a corporation; same as shareholders

shareholder

person who owns a share or shares of stock in a corporation; see stockholder

dividend

check paid to stockholders, usually quarterly, representing portion of corporate profits

bond

formal contract to repay borrowed money and interest on the borrowed money at regular future intervals

principal

amount borrowed when getting a loan or issuing a bond

interest

payment made for the use of borrowed money; usually paid at periodic intervals for long-term bonds or loans

double taxation

feature of taxation that allows stockholders’ dividends to be taxed both as corporate profit and as personal income

merger

combination of two or more business enterprises to form a single firm

income statement

report showing a business’s sales, expenses, and profits for a certain period, usually three months or a year

net income

measure of business profits determined by subtracting all expenses, including taxes, from revenues

depreciation

gradual wear on capital goods during production

cash flow

total amount of new funds the business generates from operations; broadest measure of profits for a firm, includes both net income and non-cash charges

horizontal merger

combination of two or more firms producing the same kind of product

vertical merger

combination of firms involved in different steps of manufacturing or marketing

conglomerate

firm with four or more businesses making unrelated products; products related in such a way that an increase in the price of one reduces the demand for both

multinational

corporation producing and selling without regard to national boundaries and whose business activities are located in several different countries

nonprofit organization

economic institution that operates like a business but does not seek financial gain; schools, churches, community service organizations

cooperative

co-op

nonprofit association performing some kind of economic activity for the benefit of its members

credit union

nonprofit service cooperative that accepts deposits, makes loans, and provides other financial services

labor union

organization that works for its members’ interests concerning pay, working hours, health coverage, fringe benefits, other job related matters

collective bargaining

process of negotiation between union and management representatives over pay, benefits, and job-related matters

professional association

nonprofit organization of professional or specialized workers seeking to improve working conditions, skill levels, and public perceptions of its profession

chamber of commerce

nonprofit organization of local businesses whose purpose is to promote their interests

Better Business Bureau

business-sponsored nonprofit organization providing information on local companies to consumers

public utility

company providing essential services such as water and electricity to consumers, usually subject to some government regulation