3.5 Firms Flashcards
3 ways to classify firms
Industrial sector they operate in
private or public sector (state-owned-enterprises)
Size or scale of production.
What is an industrial sector
3 industrial sectors
Contains firms that use similar production processes and specialize in the production of a similar range of products.
primary
secondary
tertiary
What is the primary sector
Extracts and uses natural resources of the Earth to produce raw materials, that are to be used by another business.
What is the secondary sector
Businesses in the secondary sector use the raw materials from the primary sector in order to produce the finished goods
What is the tertiary sector
Businesses in the tertiary sector sell the finished goods, from the secondary sector, directly to the consumer. They also provide services to businesses in other sectors.
How is the relative size of each of the industrial sectors measured in an economy
Number and size of the firms in each sector
Amount of resources the employ
Amount they produce.
What is the Private sector
Businesses that are owned and financed by private individuals with the aim to maximize profits.
Sole trader
owned controlled financed profits liability
Business that is owned, controlled and financed by 1 person.
That person receives all profits
but that person is personally responsible for any business debts.
Limited company
owned controlled financed (private vs public) profits liability
One or more shareholders
Shareholder(s) appoint one or more directors to run the company
Financed by the sale of shares to the shareholders.
a private limited company can only sell shares to private individuals
a public limited company can sell shares publicly through the stock exchange
Profits of the companies belong to the shareholders
Shareholders are not personally liable to any debts of the company.
Coorperative business
owned
controlled
financed
profits
Owned by members
Managed by a board of directors appointed by its members
Financed by member fees and draws on reserves
Members receive any surplus revenue that is not added to reserves
Charity
owned
controlled
financed
profits
cannot be owned but can be set up and registered by a pvt individual or another oragnization to provide beneficial services for public benefit
Run by a board of trustees
Gifts and donations from people and organizations
Don’t aim to make profit. Surplus income is reinvested into the charity to fund the services it provides
What is a SOE
full form
what they do
State-owned enterprise - Firm that is partially or wholly owned and operated by a government to carry out commercial activities in order to earn revenues and make profits to reinvest so that the goods and services can be improved or invested into other govt public sector projects.
How are SOEs funded
govts pay subsidies to their SOEs to reduce the cost of providing essential services and merit goods to people with low incomes who cannot afford them.
via tax
What is nationalization
Governments take ownership of private sector organizations.
eg: compulsory purchase of all shares in a private or public limited company.
What are the 3 size classifications of firms
Large
SMEs (small and medium enterprises)
Micro-enterprises
