Econ Exam 3 AHHHH AHHHHH AHHHHHH

Business firm

A for-profit business organization that provides professional services. Firms can be corporations, limited liability companies (LLCs), or partnerships. When used in a title, "firm" is typically associated with businesses that provide professional law and accounting services

Sole proprietorship

A business owned and run by a single individual.

Pros: Easiest to start, ease of management, keep profits rather than sharing, no separate business income taxes.

Cons: Unlimited liability, hard to raise financial capital, too small, limited managerial experience

Partnership

A business that is jointly owned by two or more persons. Least numerous in US.

Pros: Easily to start, ease of management, lack of separate taxes, easier to attract financial capital

Cons: Limited life, conflict between partners. General = each partner fully responsible for actions of all other partners. Limited = partner’s responsibility limited by size of their investment.

Corporation

A form of business organization recognized by law as a separate legal entity with all the rights of an individual. Allowed to buy/sell property, enter legal contracts, and sue and be sued

Pros: Ease of raising financial capital, limited liability for owners, board of directors can hire professional managers, unlimited life, ease of transferring ownership of corporation

Cons: Double taxation, difficulty/expense of getting charter, owners have little voice in how business is run, subject to more government regulations

Franchise

A temporary business investment that involves renting or leasing another firm’s successful business model

Pros: Enter nationwide network with respected product, deep product line, excellent quality standards, nationwide advertising, and professional advice

Cons: Expensive

Franchisee

An investor who rents or leases the business model from the franchisor and then hopes to recoup their investment by selling the franchisor’s goods or services

Limited liability

Firms legally cease to exist when the owner dies, quits, or sells the business

Unlimited liability

The owner is personally and fully responsible for all losses and debts of the business

Board of directors

Elected by each share of common stock. Set broad policies and goals for a corporation, and also hire a professional management team to run the business

Shareholders

People who own a share or shares of stock in a corporation

Initial public offering

Introduced by venture capitalist and entrepreneur, a company's flotation (the process of offering a company's shares for sale on the stock market for the first time) on the stock exchange

Stocks

A security that represents ownership of a fraction of the corporation that issued it. Units of stock are called shares and entitle the owner to a portion of the corporation’s profits equal to the number of shares owned

Revenue

Income, especially when of a company or organization and of a substantial nature

Marginal revenue

The extra cost incurred when producing one more unit of output.

Equation: Change in total revenue / change in quantity

Fixed costs

The costs that an organization incurs when if there is little or no activity

Variable costs

The cost that changes when the business’s rate of operation or output changes.

Equation: FC + VC / Work or Output

Total costs

Equation: Fixed cost + Variable cost

Average total costs

AFCL: FC / Workers

AVCL: VC / Workers

AFCP: FC / Output

AVCP: VC / Output

Marginal costs

The extra cost incurred when producing one more unit of output.

Equation: Change in total cost / Change in quantity

Profit/loss

Total revenue - Total cost

Diminishing marginal returns

If: Change in quantity x Price ≥ Wage, hire additional workers

Shirking

Avoid or neglect (a duty or responsibility)

Residual claimant

Represents the right of stakeholders- usually shareholders- to access any remaining assets or income of a business after all liabilities

Wage rate

A standard amount of pay given for work performed

Real wage

Equation: Money wage / CPI

Minimum wage

In California, $16.90/hour

Economic inequality

The unequal distribution of income and opportunity between different groups in society

Consumer Price Index (CPI)

An index of the variation in prices paid by typical consumers for retail goods and other items

Equation: (Current market basket / Base year basket) x 100

Inflation

A general increase in prices and fall in the purchasing value of money

Equation: [(CPI current - CPI previous) / CPI previous] x 100

Labor union

An organization of workers formed to represent its members’ interests in various employment matters

Closed shop

Most restrictive kind of union arrangement where an employers agrees to hire only union members

Right to work law

A state law making it illegal to force workers to join a union as a condition of employment

Collective bargaining

Union negotiation about management issues such as pay, working hours, healthcare coverage, vacations, etc

Strike

A refusal to work organized by a body of employees as a form of protest, typically in an attempt to gain a concession or concessions from their employer

Labor Day

A federal holiday in the United States celebrated on the first Monday of September to honor and recognize the American labor movement

Samuel Gompers

Union leader who began the Cigar Makers’ Union. One of the architects of the labor movement

Taft-Hartley Act

Also known as the Labor-Management Relations Act of 1947. Allowed individual states to pass right-to-work laws

National Labor Relations Act

Also known as the Wagner Act of 1935. Established the right of unions to have collective bargaining, created the National Labor Relations Board (NLRB) which had the power to police unfair labor practices and oversee and certify union election results