Economic - Belgrade-Brooten

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Economics
Chapter 13-14
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U.S. has created one of the highest standards of
living (how well you live, includes good and
services available)
U.S. is based on capitalism and controlled supply
and demand
Capitalism: economy that is based on the right to
earn capital (money) and to loose money, “only
the strong survive”
Capitalist: anyone that wants to make money
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Law of supply and demand: controls prices of
goods and services
Supply goes up, price goes down
Supply goes down, price goes up
Demand goes up, price goes up
Demand goes down, price goes down
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A.
B.
C.
Economy is based on 4 factors.
Production-actual making of a product of
providing a service
Distribution- moving goods and services to
where you will sell it
Marketing-making your product “known” to the
public
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D.
Whole sale-selling to stores of companies
Retail- selling to the public
Capital –money or investment needed to run a
company (research and development)
Economic Freedoms in the U.S.
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Freedom to buy and sell what you want, as long as it is legal (Free
market economy is a command economy)
Freedom to compete-government can’t tell you where, when and if
or if not you can sell your product. Only best survive
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Some sectors are regulated, ex. Electric utilities
Freedom to earn a living –pull yourself up by your own bootstraps,
everyone can be rich if they work hard enough
Freedom to make a profit charge what the market will bare
Freedom to own property
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House and land
Personal Belongings cars, jewels, etc.
Ideas in writing (songs, books, etc.)
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Government gives you a copyright allows only you to make money from it
Inventions government gives you exclusive rights if you get a patent
expensive to get upwards of $12,000
When we look at businesses they are
held:
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Privately owned by one or more individuals
(no stock) ex. Cargill, BST, Coborns
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Publicly shares of stock traded ex. Coke,
Ford, GAP, and RJR
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Most businesses today are national to
international-worldwide market.
Business and the way they operate
has changed over time.
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In the beginning a “barter” system people would trade
what they made for what they needed.
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Use of $ allowed to sell your product in exchange for $.
Products usually hand made.
Cottage System  hand made products, no two exactly
same, slow and inefficient
Industrial Revolution  began in early 1800’s New
Sources of power allowed this
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Hydro
Steam
Gas (fossil fuels)
Electricity
With the advent of Ind. Rev. businesses were
able to produce products more:
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Cheaply
Efficiently
Quickly
With better quality
Bus. Was able to do this with 2
innovated techniques:
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Interchangeable parts  parts from one model
will fit all of the same model
Assembly –line product  product moves
down a line and parts are added to it. By time it
gets to the end it is complete.
During Ind. Rev. Businesses grew to
be very large by:
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Mergers  2 companies becoming 1 sometimes called
“Hostile Takeover”
Trusts  placing controlling interests of several companies
in the hands of one Board of Trustees
Because some companies got so big, they had
“monopolies” (total control) over certain sectors of bus.
Ex.  Standard oil
Eventually the Federal Government had to step in and
prevent this by inacting anti-trust laws
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Broke many of the companies up
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All business owners are entrepreneurs
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Businesses can be classified as:
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Single or sole proprietorship = 1 owner
Simplest form to set up, no legal papers but you may want
to consult a business attorney
 Tax rate lowest
 Deductions are allowed
 Liable for losses from the business, they can go after all
your assets
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Advantage – your own boss
Disadvantage- you can lose everything
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Partnership- 2 or more involved in ownership of
business
Requires legal papers, need a lawyer
 Tax paid is dependent on the percent of the business owned
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Advantages
2 heads are better than 1
 More $ available
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Disadvantages
Upon death of partner the partnership is dissolved, you may have
to pay off heirs of partner
 Each partner assumes unlimited liability for debts incurred in the
business
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**Be careful when picking your business partner!
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Corporation (Inc.)
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Advantages of corporation:
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Not easy to set up, requires a lot of legal paper work, rules vary
from state to state
May be private of public, if it is public it will have shares (part
ownership) of stock you may buy or sell
You can only loose what you have put into the company limit
on liability –shareholders will be the big losers if it is public
Disadvantages
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Taxed at higher rate
Taxed twice A. Income (company income)
B. Dividends ( $ given to shareholders quarterly)
Private corporations would be run similar to partnerships and
sole proprietorships.
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Public Corporations
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Run by a board of directors
They make decisions regarding the runnings of the company
They also pick executive officials including
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Money for the company can be raised by:
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CEO (Chief Executive Officer)
CFO (Chief Financial Officer) President and others
Sales of shares of stock –IPO  There is no intrinsic value in the stock, it
is worth what someone is willing to pay.
Bonds  IOU’s that the company issues are guaranteed at a certain % of
interest all bonds are rated A, AA, AAA. The higher the rating the less
risk, a few have failed.
The bottom lines for all companies is profit how much
you make after expenses
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Gross  before expenses
Net  after expenses
Business decisions are based on 4
factors:
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Land
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Include property and buildings
Rent or buy
Is it in the right location?
Capital does the company have enough money to do
what it wants?
Labor will the company have enough workers, will they
have to educate them?
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How will they be paid
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Wages  hourly rate, overtime
Salaries  usually act yearly, paid every 2 weeks, some amount of $ no
matter how many hours you put in
Productivity  amount of work complete in an hr./day
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Management  do you have the right people to
get the job done
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A good manager will:
Take charge
 Be assertive
 Tell his or her workers that they did a good job
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Profit is what business owners want and they must
consider what they can make as their overhead (cost
of product made).

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