Opener: Tuesday, January 26 th

Transcription

1 Opener: Tuesday, January 26 th Unit 3 Pretest Just answer the questions on your Zipgrade answer sheet Just ignore any extra questions on your answer sheet This is a sneak preview of our unit don t worry if you don t know it yet you will!

2 Focus #4 Business and Market Structures The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. Compare and contrast three forms of business organization sole proprietorship, partnership, and corporation. Explain the role of profit as an incentive for entrepreneurs. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.

3 Entrepreneurs and Profit Motive People who start businesses, also known as firms, are called entrepreneurs Entrepreneurs strike out on their own, taking on the risk of a market economy to start a business They usually have to borrow money to pay for capital investments such as equipment or rent If the business fails, entrepreneurs risk losing everything that they ve invested! Entrepreneurs take on these risks in order to earn a profit this profit motive is the driving force behind new products and services

4 Types of Business Organization There are three main types of business organizations: Sole Proprietorships Partnerships Corporations These businesses differ: on their origin their structure, and their liability or the extent to which the business owners are responsible for any losses incurred by the business

5 Sole Proprietorships This type of business has one owner, who takes all the risks and receives all the profits These businesses are also easy to start About 70% of American businesses are this type; but, they only earn about 6% of US revenue The owner has total control and can make all decisions; however, these businesses are usually very small with limited capital and the owner has unlimited liability That means that the owner is personally responsible for all costs of the business, or all of its debts if the business fails!

6 Sole Proprietorships Advantages Ease of entry/start-up Least regulated form of business Sole receiver of profits Full control Easy to discontinue Disadvantages Unlimited personal liability Limited access to resources Lack of permanence

7 Partnerships These businesses are similar to proprietorships, but they have two or more owners So, they are usually a little larger and have access to more funds; however, decision-making is more difficult as it involves more people Partnerships do allow partners to specialize and offer more products or services; but, they must also share the profits of the business All partnerships are different they may have silent partners, minority partners, and/or majority partners it s all up to the entrepreneurs!

8 General Partnership Most common type of partnership Partners share equally in responsibility and liability Common examples: doctors, lawyers, accountants and other professionals

9 Limited Partnership Only one partner is required to be a general partner. i.e. only one partner has unlimited liability for the firm s actions and debts Other partners contribute only money and do not actively manage the business Limited partners can lose only the amount of their original investment.

10 Limited Liability Partnership (LLP) A newer type of partnership is recognized in many states. Functions like a general partnership, except that all partners are limited from personal liability in certain situations, such as a partner s mistakes. Most states allow professionals such as attorneys, doctors, dentists and accountants to register as LLPs.

11 Partnerships Advantages Ease of entry/start-up Shared decisionmaking & specialization Larger pool of capital Taxes limited to share of ownership the business itself does not pay taxes Disadvantages Unlimited liability Potential for conflict among partners

12 Opener: Wednesday, January 27 th Sole Proprietorship vs. Partnership All in Yo Business: Sole Prop vs. LLC vs. C-Corp

13 Focus #4 Business and Market Structures The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. Compare and contrast three forms of business organization sole proprietorship, partnership, and corporation. Explain the role of profit as an incentive for entrepreneurs. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.

14 Corporations Corporations are a different breed of business! Corporations are treated like an individual they pay taxes, they follow laws, and they have a birth certificate called a charter This charter outlines how investors can start to own parts of the business!

15 Corporations

16 Corporations Most complex form of business It is it s own legal entity apart from its owners the shareholders Corporations pay taxes, make contracts, sue other parties and get sued by others

17 Shareholders People own parts of businesses by buying stock If a corporation issues 1000 shares of stock, each share is worth 1/1000 th of the business These owners are called shareholders and are often paid annual dividends which is the portion of corporate profit paid to shareholders The business itself is run by a board of directors, headed by the chief executive officer (CEO) The benefit is that shareholders only have limited liability they are only responsible for the amount of their original investment, not the debts of the business

18 Five Types of Ownership Mergers 1. Conglomerate merger between two unrelated firms (ex. Walt Disney and ABC) 2. Horizontal merger merger between companies in the same industry (ex. two cable companies) 3. Vertical merger merger joins two companies that may not compete with each other, but exist in the same supply chain (ex. auto company with parts supplier) 4. Market extension mergers merger between two companies that deal in the same products, but in different geographic markets (ex. two banks operating in different markets) 5. Product extension mergers merger between firms that that are related to each other & operate in same markets. Allows them to combine their products & get access to more consumers.

19 Conglomerates

20 Supply Chains & Vertical Mergers

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22 Corporations Advantages For Shareholders Limited liability More flexibility Stock is transferable (can be bought & sold) Corporation Itself More potential for growth Selling stock allows them to raise money Tend to last a lot longer Disadvantages Expense and difficulty of starting up Double taxation (both corporation & shareholders pay taxes) Potential loss of control by the founders More legal requirements and regulations

23 A Quick Comparison % of All Businesses % of Revenue 18% 7% 11% 7% 75% 82% Sole Proprietorships Partnerships Corporations Sole Proprietorships Partnerships Corporations

24 Other Organizations Business franchise a semi-independent business that pays fees to a parent company. A franchise usually provides exclusive rights to sell in a geographic area. Cooperatives(Co-Op) is a business organization owned and operated by a group of individuals for their shared benefit (ex. Sam s Club, credit unions) Non-Profit Organizations are usually in the business of benefiting society (ex. American Red Cross) Usually run by a Board of Directors

25 Checkpoint Questions Officers of a Corporation (like the CEO) are selected by the: Stockholders Owners Board of Directors Chief Executive Officer An important advantage of a Partnership compared to a Sole Proprietorship is: Lack of longevity (i.e. doesn t last long) Limited liability Potential for conflict Greater access to financial capital Which of the following falls under the concept of Unlimited Liability? Corporations are taxed at a higher rate Owners can lose their own personal property Size of the business is limited Financial responsibility is limited to corporate assets The joining together of AT&T and Bellsouth to create Cingular (which later become Verizon) is an example of a : Vertical merger Horizontal merger Conglomerate Partnership

26 Questions for Reflection How does a corporation differ from a sole proprietorship or partnership? What is stock? Why must stockholders pay taxes on dividends?

27 Opener- Wednesday, January 27 th Writing Prompt On a clean sheet of paper write Then write down this prompt and answer it Brainstorm & write down 3 examples of each type of business structure: Sole Proprietorship Partnerships Corporations If you were to start your own business, which business type would you pick and why?

28 Focus #4 Business and Market Structures The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. Compare and contrast three forms of business organization sole proprietorship, partnership, and corporation. Explain the role of profit as an incentive for entrepreneurs. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.

29 Competition All of these businesses operate in the US economy, vying (competing) for consumers This is called competition and it helps make prices reflect the equilibrium between supply and demand But, just like there are many types of businesses, there are also different types of competition! Perfect Competition Monopoly Oligopoly Monopolistic Competition

30 Perfect Competition A market with perfect competition is subject only to the laws of supply and demand The number of firms is unlimited, and there are no barriers to entering the market Businesses become known as price takers because they have no control over prices it is solely up to supply and demand

31 Perfect Competition Perfect competition is an ideal it is hard to achieve in real life Best examples include the market for some farm products, such as wheat and corn and the New York Stock Exchange Four requirements for perfect competition: 1. Many buyers and sellers participate in the market 2. Sellers offer identical products 3. Buyers and sellers are well informed about products 4. Sellers are able to enter and exit the market freely

32 Monopolistic Competition In this type of market, there are many competing producers, because barriers to entering the market are relatively low Offers the most variety of products and price differences Each firm makes products that are slightly different from the others either in reality or in people s minds Most of the things we buy everyday are made by companies in this type of competition: soap, shampoo, toothpaste, jeans, and shoes, for example The success of these firms depends on product differentiation or branding and then advertising!

33 Oligopoly In this case, a few small firms dominate the market instead of just one but they still have the ability to influence price like a monopoly But, they are still independent companies they make decisions based on what other firms do Oligopolies are relatively common examples: automobiles, soft drinks, airplanes, and gas If these companies work together to fix prices, they become known as a cartel Otherwise, they compete in price wars to win customers

34 Monopoly The opposite of perfect competition is a monopoly one firm that has total control over the price of a certain good or service Thus, monopolies are known as price makers All monopolies have one trait in common a single seller in the market However, different market conditions can create different types of monopolies

35 Monopolies Because they set prices, monopolies can be seen as corrupt (i.e. bad), but sometimes they actually benefit a society instead of harm it In fact, natural monopolies, or a market in which one large company can make products so much more efficiently and cheaply than a lot of smaller companies, are allowed to exist and are regulated by the government These include public utilities such as water and power Also, patent or technology monopolies allow new inventors to profit from their original idea for a set amount of time without competition

36 A Quick Comparison

37 Comparing Market Structures Around the classroom are posters labeled: Perfect Competition Monopolistic Competition Oligarchy Monopoly When instructed, take a Description Strip from the basket. When instructed, tape your Description Strip to the Market Structure poster that fits your description. Be ready to discuss!

38 Comparing Market Structures Part Two After discussing our anchor chart results, you will be given time to complete your Comparing Market Structures graphic organizer. The class will be placed in four groups. These groups will rotate around the room to collect information from each Market Structure anchor chart.

39 Checkpoint Questions In an oligarchy: a. A few major companies dominate the market, but prices vary greatly b. One major company dominates the market and prices vary c. Many companies are in the market and prices vary greatly d. A few companies dominate the market and prices vary little e. None of the above Which of the following markets is the closest real life example to Perfect Competition? a. The gasoline market b. The apple market c. The computer market d. The market for prerecorded music/compact discs

40 Opener Friday, January 29 th Market Structures Review Oligopoly

41 A Little Oversight Sometimes the profit motive can go a little too far. Some common problems: Collusion when companies agree to sell products at the same price Predatory Pricing deliberately pricing products so low that competitors are driven out of business Price Fixing companies agree to sell products at the same price Cartel - an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition Trust similar to a cartel - can be a combination of firms that potentially hurt competition

42 Government Involvement Sherman Anti-Trust Act 1890 outlaws mergers and monopolies that limit trade between states. Federal Trade Commission (FTC) 1914 independent agency of the U.S. government Its principal mission is the promotion of consumer protection and the elimination and prevention of anticompetitive business practices such as illegal monopolies. Securities & Exchange Commission (SEC) federal agency responsible for enforcing federal/national securities laws, proposing new securities rules and general regulation of the nation s stock exchanges.

43 Making Business Work For You! You can invest and increase your wealth in many ways: Buying Stock a certificate of ownership in a corporation Types of Stock Income stock stock that pays dividends (company profit shared with shareholders) Growth stock stock pays few or no dividends. Instead profit is reinvested in the firm. The business (and its stock) thus increases in value over time. Stock Classification Common stock owners have voting rights Preferred stock non-voting owners of the company. They receive dividends before the owners of common stock.

44 Stock Exchanges A stock market does not own shares of stock. Instead, it acts as a market where stock buyers connect with stock sellers. Stocks can be traded on one or more of several possible exchanges. Stocks first become available to trade after the company conducts its initial public offering (IPO). In an IPO, a company sells shares to an initial set of public shareholders (primary market). After the IPO floats shares into the hands of public shareholders, these shares can be bought and sold on an exchange (secondary market) The stock exchange tracks the flow of orders for each stock. This flow of supply and demand sets the stock price.

45 Major Stock Exchanges New York Stock Exchange (NYSE) auction exchanges traders are physically present on the Exchange trading floors Largest and most prestigious stock exchange National Association of Securities Dealers Automated Quotations (NASDAQ) An electronic exchange Second largest stock exchange in the world There are also many other global stock exchanges based in other countries (Tokyo, London, Shanghai, etc.) In order to make money in the stock market, it s a good idea to buy low and sell high!

46 Stock Terms to Know Bull market describes an overall rise in the stock market, as measured in market share prices Bear market describes an overall decline in the stock market, as measured by market share prices Stock Splits All publicly traded companies have a set number of shares being traded at any given time A stock split is when the company s Board of Directors decides to increase the number of outstanding shares by issuing more shares to current shareholders Example: Pre-Split After Stock Split 10 million shares 20 million shares $20 trading price $10 trading price Main reasons for stock splits raise additional money/capital for company and make the share price more affordable

47 Checkpoint Questions Which type of market has very many producers, all selling identical products? Perfect competition Monopolistic competition Oligopoly Monopoly A form of collusion when companies agree to sell products at the same price is called? Patenting Monopolizing Price Maximization Price fixing

48 Questions for Reflection What is the purpose of antitrust laws? How does predatory pricing hurt competition? Why must perfectly competitive markets always deal in commodities/identical products?

49 Opener Monday, February 1 st Market Structures Review

50 Unit 3 Review

51 How the Stock Market Works

52 Opener: Tuesday, February 2nd Kahoot Review On your phone, access your web browser using the school s WIFI (don t use your data plan!) Go to Kahoot.It and log in our game PIN Everyone needs to log in with your real first and last name!