exam Flashcards
The monetary value of a product.
Price
System of allocating goods and services
without prices.
Rationing
A fuel created from living materials.
Biofuels
A simplified version of a complex behavior expressed in the form of an equation, graph, or illustration
Economic Model
Price where quantity supplied equals quantity demanded
Equilibrium Price
Quantity of output supplied that is equal to the quantity demanded at the equilibrium price
Equilibrium Quantity
Situation where quantity supplied is
greater than quantity demanded at a
given price.
Surplus
Situation where quantity supplied is less
than quantity demanded at a given
price.
Shortages
The highest legal price that can be
charged for a product.
Price ceiling
The lowest legal price that can be paid
for a product.
Price floor
Price floor for agricultural products set
by the government to stabilize farm
prices.
Target price
loan that carries neither penalty nor
further obligation to repay.
Nonrecourse Loan
Unincorporated business owned and run by a single person who has rights to all profits and unlimited liability for all debts of the firm; most common form of business organization in the United States
Sole proprietorship
Requirement that an owner is personally
and fully responsible for all losses and
debts of a business.
Unlimited liability
Situation in which a firm legally ceases to
exist when an owner dies or quits or a
new owner is added; applies to sole
proprietorships and partnerships.
Limited life
Unincorporated business owned and
operated by two or more people who share
the profits and have unlimited liability for the
debts and obligations of the firm.
Partnership
Form of business organization recognized by
law as a separate legal entity with all the
rights and responsibilities of an individual,
including the right to buy and sell property,
enter into legal contracts, and to sue and be
sued.
Corporation
Check paid to stockholders, usually quarterly, representing a portion of corporate profits
Dividend
Certificate of ownership in a corporation; can be either common or preferred stock
Stock
requirement in which a corporation, but not its
owners, is responsible for all losses and debts of the business.
Limited liability
Feature of taxation that allows
stockholders’ dividends to be taxed both
as corporate profit and as personal
income.
Double taxation
Business investment that involves renting
or leasing another successful business
model.
Franchise
A measure of business profits determined buy
substracting all expenses, including taxes, from
revenues.
Net income
Gradual wear on capital goods.
Depreciation
Total amount of new funds the business
generates from operations; broadest measure
of profits for a firm because it includes both net
income and non-cash charges.
Cash flow
Combination of firms producing the
same kind of product.
Horizontal merger
Combination of firms involved in different
steps of manufacturing, marketing, or
sales.
Vertical Merger
firm with four or more businesses making
unrelated products, with no
single business responsible for a majority of its sales.
Conglomerate
Economic institution that operates like a
business but does not seek financial gain;
schools, churches, and community-
service organizations are examples.
Nonprofit organization
Nonprofit association performing some
kind of economic activity for the benefit
of its members.
COOPERATIVE/CO-OP
Nonprofit service cooperative that
accepts deposits, makes loans, and
provides other financial services.
Credit Union
Organization that works for its members
interests concerning pay, working hours,
health coverage, fringe benefits, and
other job-related matters.
Labor Union
In a competitive market economy, prices
are neutral because they favor neither the producer
nor the consumer.
Neutrality
Prices in a market economy help provide
flexibility. Unforeseen events such as natural disasters
and war affect the prices of many items.
Flexibility
Most people have known about prices all
their lives. As a result, prices are familiar and easy to
understand.
Familiarity
Prices have no cost of administration.
Competitive markets tend to help products find their
own prices without outside help or interference.
Efficiency
Prices help allocate resources
between markets because as prices ___, demand ___
increase, lower
Surpluses and shortages help establish the
equilibrium price and quantity of output.
Surpluses cause sellers to ____ while shortages
cause sellers to ____
lower prices, raise prices
Goals of Price Ceilings
To protect buyers from paying overly high prices (price gouging).
To save resources for other needs, such as a war.
Goals of price floors
To protect business (like farming) during times of difficulty
To stabilize prices and incomes for certain businesses
Markets are said to “talk” when prices move up or down significantly in reaction to a related event
Gold prices rise
Stock prices fall
Oil prices rise
Advantages of Sole Proprietorships
Easy to start up
Ease of management
Owner keeps all profits without having to share
Not required to pay separate business income taxes
Psychological satisfaction of being your own boss
Easy to get out of business.
Disadvantages of Partnerships
General Partnership: each partner is fully responsible
for the acts of all other partners.
Limited Partnership: responsible for the debts of the
business, but limited to his or her investment in the firm.
Limited life
Potential for conflict between partners.
A dividend is a what?
check that
stockholders receive as a
portion of the corporate earnings
Disadvantages of Corporations
Double taxation of corporate profits
Difficulty and expense of getting a charter
Owners (shareholders) have little voice in how the
business is run
Subject to more government regulation than other
forms of business.
Reasons for merging
Faster growth
Synergy
Economies of Scale
Diversification
Elimination of Rivals
Change or lose corporate identity
If a multinational makes unrelated products, it is a
conglomerate
Cooperatives/Co-ops
consumer cooperative
Service cooperative
Producer cooperative