Unit 3 - Market Structures Flashcards
Entrepreneur
Self-employed business person willing to take risks to keep business
Firms
Privately owned organization engaged in business activity
Unlimited Personal Liability
Owner(s) of business personally responsible for all debts incurred.
Progressive tax
Tax in which the tax rate increases as an individual’s income increases
Proxy
Document signed by shareholder appointing another person to vote on behalf of shareholder
Dividend
Corporation profits distributed to shareholders on per-share basis
Privatize
Give ownership of government enterprise to private sector
Corporation
Business firm recognized legally as separate entity
Private Corporation
Company privately controlling all sales of shares
Public Corporation
Firm that trades shares in stock market
Articles of Incorporation
Legal document filed with government that incorporates business
Shares
Corporate assets sold to buyers, giving partial ownership of company subject to profits and losses.
Shareholders
- Owners of shares of a corporation
- Entitled to voting rights and share of corporation’s profits.
Government Enterprise
Business that provides services owned by federal, provincial, or municipal government.
Crown Corporation
Business owned by federal government
Non-Profit/Charitable Organization
Government-registered form of business
Sole Proprietorship Details
- Business owned by 1 person
- Least complicated form of business
- Responsible for firm’s debts and entitled to firm’s profits
Advantages of Sole Propetiorship
- Keep financial affairs, business dealings confidential
- Able to keep own profits
Disadvantages of Sole Properitorship (A)
- Responsible for all debts and assets may be used to pay them
- Don’t last long due to difficulty planning
Disadvantages of Sole Properitorship (B)
- No one else to run business or raise funds
- Difficult to obtain financial capital
- Pay more tax b.c income tax is progressive
Partnership
- Owned by two/more people by terms of legal document called partnership agreement
- Personal assets cannot be used to pay off debts
General Partnership
All partners take part in management of firm and have unlimited personal liability for business losses
Limited Partnership
- Limited partners and at least one general partner
- Limited partners not permitted to take part in management of business
- Are liable for debts up to amount of original investment.
Advantages of Partnership
- Pooling of talent and capital
- High personal motivation and few legal expenses needed to pay individually.
- Easier to get loans as more people are personally responsible for repayment
Disadvantages of Partnership (A)
- If limited partners fail to pay debts, they fall onto general partners
- Partners have to pay progressive taxes - less incentive to make money
Disadvantages of Partnership (B)
- Other partners have high ability to buy retiring partner than allow new member
- Can only use personal savings to take mortgages to raise money
Disadvantages of Partnership (C)
- Partnerships legally end if one of general members becomes unfit for business
- Partnerships don’t last long
- Disputes may arise
Corporation Details
- At annual meeting: Shareholders elect board of directors to run company
- Investors don’t have responsibility to pay company fees
Common Share
Provide a shareholder with voting rights
Preferred Share
Gives shareholder preferential position for profits but don’t provide voting rights
Advantages of Corporation
- Can self-finance from size
- Risk of owners restricted to the amount invested
- Can expand easier
More Advantages of Corporations
- Shares can be transferred easily
- Even if shareholder leaves, corporation still stands
- Lasts longer and pays lower tax
Disadvantages of Corporation
- High fee to pay to start corporation
- Must keep lists of shareholders, directors, assets, and business dealings with govt
- Reduced personal incentive in seeing corporation grow
More Disadvantages of Corporation
- Host annual meetings, produce annual financial statement and file corporate tax
- Gives info to competitors but prevents price fixings
Government Enterprise
- Provide services private sector doesn’t offer
- Provide competition to industries by single firm
- Increase employment
Forms of Government Enterprise
- Public utilities supply
- Provincial Control Boards
- Housing Corporations (affordable shelter)
- Transit Commissions (affordable public transportation)
Advantages of Government Enterprise
- Host Natural Monopolies at lower cost to customers
- Provide services not given by private sector
- Increase competition
Natural Monopolies
- Occurs in given industry due to high start-up costs
- Made to protect consumers and reduce costs
Disadvantages of Government Enterprise
Less productive and/or efficient
Non-profit and Charitable Organizations
- Private institutions that aren’t allowed to generate profits
- No income tax
- Managed by elected trustees or board of directors
Perfect Competition
- Many producers and uniform product
- Ex: suppliers of agricultural goods
- Many buyers and sellers, so they have no control over supply or price
Aspects of Perfect competition
- Start-up and exit costs are both low
- Little non-price competition
- Main goal is to decrease cost
Monopolistic Competition
- Many producers that differentiate products
- Exist in most markets
- Individual firms large enough to influence total supply
- Somewhat easy for new firm to startup
Product Differentiation
- Product Quality Increase
- Service Improvements
- Accessibility
- Promotion
Oligopoly
- At least 50% market share for largest five firms
- Produce similar OR different products
- Varying freedom to set supply
- Significant entry barriers
- Intense non-price competition
Characteristics of Oligopolies
- Prices for products stay relatively similar within small range
- Common pricing strategy occurs
Collusion
Secret agreement for a dishonest purpose
Monopoly
- One firm controls marketplace
- Unique product
- High barriers to entry
Characteristics of Monopolies
- Can produce large output from financial resources
- No non-price competition
- Sets whichever price making most profit
Legal Monopoly Types
- Copyright law
- Patent law
- Local monopoly
- Exclusive franchises
Copyright Law
Gives writers control of work they produce
Patent Law
Gives developers sole right to sell product for limited time
Local Monopoly
Sole right to provide a product or service within one firm
Merger
The joining of two firms or companies to operate effectively as one.
Acquisition
The purchase of controlling interests in one company by another
Horizontal Integration
Joining together of two firms producing same product as one firm
Horizontal Merger
Consolidation of two firms producing same product or service
Vertical Integration
Merging of two firms involved in different stages of production process of good or service
Holding Company
Enterprise holding shares in other producing companies
Conglomerate
Group of companies involved in different industries but controlled by central management group
