Econ Chapter 3

Hartman (2026)

Unlimited liability

The owner can be held personally responsible for all business debts and legal obligations; personal assets may be used to pay business debts.

Inventory

Goods and materials a business has on hand to sell or use in production.

Limited life

A business may end when an owner dies, withdraws, or the business is dissolved.

General partnership

A business owned by two or more people who share management, profits, and responsibility for debts; general partners typically have unlimited liability.

Limited partnership

A partnership with at least one general partner with unlimited liability and one or more limited partners whose liability is generally limited to their investment and who usually have little or no role in daily management.

Charter

A government-issued document that legally establishes a corporation.

Stock

A share of ownership in a corporation.

Stockholders / shareholders

People or organizations that own shares of a corporation.

Dividend

A portion of corporate profits distributed to shareholders when the corporation’s board decides to pay one.

Common stock

Corporate ownership that usually carries voting rights and may receive dividends that vary with company performance.

Preferred stock

Corporate ownership that generally has priority over common stock for dividends and assets if the corporation is liquidated, but usually has limited or no voting rights.

Bond

A loan made by an investor to a corporation or government; the issuer promises to repay the principal and usually pay interest.

Principal

The original amount borrowed or invested, excluding interest.

Interest

The cost of borrowing money or the return paid to a lender or investor, usually calculated as a percentage of the principal.

Unlimited life

A corporation can continue to exist even when its owners change or die, unless it is dissolved or its charter is revoked.

Double taxation

Under the traditional corporate tax structure, corporate profits may be taxed at the corporate level and dividends may also be taxed as shareholders’ income.

Sole proprietorship

A business owned and usually managed by one person.

Partnership

A business owned by two or more people who share responsibilities, profits, and losses.

Corporation

A business organization legally separate from its owners, established under a charter.

Income statement

A summary of a business’s revenues and expenses over a period of time that shows whether it earned a profit or had a loss.

Cash flow

The movement of money into and out of a business.

Merger

When two businesses combine into one organization.

Horizontal merger

A merger between businesses at the same stage of production in the same industry.

Vertical merger

A merger between businesses at different stages of production or distribution.

Conglomerate

A corporation made up of businesses in different industries.

Diversification

Operating in multiple industries or areas to spread risk, so weak performance in one area may be offset by stronger performance in another.

Multinational corporation

A corporation that owns or controls business operations in more than one country.

Adam Smith

eighteenth-century Scottish economist whose work helped shape modern economic thought. He argued that individuals pursuing their own economic interests can contribute to broader economic activity through competition and exchange.

 Laissez-faire

 means limited government involvement in economic affairs. In practice, governments may still establish rules to protect competition, consumers, workers, and the public.

Market structure

How a market is organized, including the number and size of firms, the products they sell, and how much control they have over prices.

Perfect competition

A market with many buyers and sellers, very similar products, few barriers to entry, and firms with little control over price.

Monopolistic competition

A market with many sellers offering products that are similar but differentiated by features, quality, branding, or location.

Oligopoly

A market dominated by a small number of large firms, where each firm’s decisions may affect competitors.

Monopoly

A market in which one firm is the sole seller of a product with no close substitutes and substantial barriers limit competition.

Imperfect competition

A market situation in which one or more conditions of perfect competition are absent; firms may influence prices, products may differ, or entry barriers may exist.

Product differentiation

Making a product appear distinct from competing products through features, quality, design, branding, or service.

Nonprice competition

Competition through methods other than lowering prices, such as advertising, branding, design, customer service, loyalty programs, location, and quality.

Collusion

When businesses secretly or openly cooperate instead of competing.

Price-fixing

An agreement among competitors to set, raise, maintain, or stabilize prices. These practices can harm consumers and may violate antitrust laws.

Natural monopoly

A market where one firm can supply the market at a lower cost than multiple competing firms, often because infrastructure costs are very high.

Geographic monopoly

A seller has little or no competition in a particular location because distance, isolation, or local conditions limit alternatives.

Technological monopoly

A firm gains control because it owns or controls a technology, invention, or production method competitors cannot readily use.

Government monopoly

A monopoly in which the government owns or controls a service or grants one provider exclusive authority to provide it.

Market failure

When a market does not allocate resources efficiently or produce outcomes that maximize society’s overall well

Inadequate competition

A cause of market failure in which a monopoly or a few powerful firms may restrict output, raise prices, or limit choices.

Inadequate information

A cause of market failure in which buyers or sellers lack important information about prices, quality, risks, or terms.

Resource immobility

A cause of market failure in which workers or resources cannot easily move to where they are most productive.

Externality

A cost or benefit that affects people outside a transaction and is not fully reflected in its price.

Public goods

Goods that are generally nonexcludable and nonrivalrous: it is difficult to prevent people from benefiting, and one person’s use does not substantially reduce what is available to others.

Nonexcludable

A characteristic of a public good: it is difficult to prevent people from benefiting from it.

Nonrivalrous

A characteristic of a public good: one person’s use does not substantially reduce what is available to others.

Negative externality

A cost imposed on people outside a transaction, such as pollution harming nearby residents.

Positive externality

A benefit received by people outside a transaction, such as vaccination reducing the spread of illness to others.

Trust

A business arrangement in which companies combine or coordinate control, historically sometimes to limit competition.

Price discrimination

Charging different customers different prices for the same or similar product when differences are not explained by costs or other lawful factors.

Cease and desist order

An order requiring a person or business to stop a specified activity alleged to violate a law or regulation.

Public disclosure

Making specified information available to the public, such as required information about a company, product, or transaction.

Antitrust legislation

Laws intended to preserve competition, limit monopolization and anticompetitive agreements, and protect consumers from unfair market practices.

Sherman Antitrust Act (1890)

Prohibits contracts, combinations, or conspiracies that unreasonably restrain trade and attempts to monopolize.

Clayton Antitrust Act (1914)

Addresses practices that may substantially lessen competition, including certain mergers and exclusive arrangements; it also restricts certain forms of discriminatory pricing.

Federal Trade Commission Act (1914)

Established the Federal Trade Commission and prohibits unfair methods of competition and unfair or deceptive acts or practices.

Robinson

Patman Act (1936)

Internalize an externality

Change incentives or rules so decision