Types of Business Organizations Extra Info: Unit 1 and Unit 2

Circular Flow Chart Understand the differences between a Sector and a Market. Sector = Household & Business Firms Market = Product & Factor

Interest Rates If interest rates rise… -Increases the cost of borrowing. -Increases incentive to save rather than spend. -Rising interest rates affect both consumers and firms.

Interest Rates If interest rates decrease… -Reduces the incentive to save. -Cheaper borrowing costs. -Rising prices. The prices inflate because the lower the interest rate, the more money you’ll have to buy assets. If the supply is down, and the demand is up, then the price will rise.

Stocks Stock is a share in the ownership of a company. Corporations raise money through stocks Benefits: -You earn a share of the corporation’s profit. (Dividend payments) -Earn money by selling stock at a price greater than the purchase price (Capital gains)

Types of Business Organizations A business organization is an enterprise that produces goods, or provides services, usually in order to make a profit. 3 types of business organizations Sole Proprietorship Partnership Corporation

A business organization owned and controlled by one person. Sole Proprietorship A business organization owned and controlled by one person.

Sole Proprietorship Benefits: Disadvantages: Easy to start up, and close down Has satisfaction of running business their way Few regulations Keeps all of the profits Disadvantages: Limited funds Limited life Unlimited liability

Partnership A business co-owned by two or more partners who agree on how responsibilities, profits, and losses of that business are divided. Examples: McDonalds (Richard and Maurice McDonald), Apple (Steve Jobs and Steve Wozniak), and Microsoft (Bill Gates and Paul Allen) (All examples above are corporations now)

Partnership Benefits: Easy to start up and close down Few Regulations Greater access to funds Partners may bring complimentary skills to the business Disadvantages: Unlimited liability Shared decision making may create conflict among partners Limited Life

Corporation A business owned by stock-holders, who own the rights to the company’s profits but face limited liability for the company’s debts and losses. Examples: Walmart, Exxon Mobil, Microsoft

Corporation Benefits Disadvantages Greatest access to funds Business run by professionals Limited liability Unlimited life Disadvantages Difficult to start up More regulations Double taxation Owners may have less control

Important Figures in Economics Milton Friedman Believed that the market should be free to operate in all fields Believed the government’s most important role was to control the amount of money in circulation. Economic advisor to President Nixon and Reagan, and British prime minister Margaret Thatcher

Important Figures in Economics John Maynard Keynes Introduced the idea of using government action to stimulate aggregate demand. Aggregate demand = the total amount of goods and services that households, businesses, governments, and foreign purchasers will buy. Founder of Keynesian economics

Important Figures in Economics Friedrich Hayek Austrian economist Strong advocate of free market capitalism Author of The Road to Serfdom Awarded the Nobel Prize in Economic Sciences in 1974