1. ‘Microeconomics’ Notes Traverse City West Senior High Introduction To Economics

2. Shirking The behavior of a worker who is putting forth less than the agreed- to – effort.The behavior of a worker who is putting forth less than the agreed- to – effort.

3. Business Firm An organization that uses resources to produce goods and services that are sold to consumers, other firms, or the government.An organization that uses resources to produce goods and services that are sold to consumers, other firms, or the government. –Types of Firms: Sole ProprietorshipsSole Proprietorships PartnershipsPartnerships CorporationsCorporations –Franchise

4. Sole Proprietorship A Business that is owned by an individual, who makes all of the business decisions, receives all of the profits / losses, and is legally responsible for the debts of the firmA Business that is owned by an individual, who makes all of the business decisions, receives all of the profits / losses, and is legally responsible for the debts of the firm

5. Sole Proprietorship (Cont’d) AdvantagesAdvantages –Easy to form and dissolve –All decisions are made by the individual –Profits are only taxed once Disadvantages –Faces unlimited liability –Limited ability to raise funds for expansion –Usually end with the retirement or death of the individual

6. Partnership A Business that is owned by two or more co- owners, who share all of the profits / losses, and are legally responsible for the debts of the firmA Business that is owned by two or more co- owners, who share all of the profits / losses, and are legally responsible for the debts of the firm

7. Partnership (Cont’d) AdvantagesAdvantages –The benefits of specialization can be realized –Profits of the business is income of the partners, and only personal income taxes apply Disadvantages –Faces unlimited liability and could incur debts from other partners –Decision making can be complicated and frustrating

8. Corporation A legal entity that can conduct business in its own name in the same way than an individual does and is owned by its stockholders

9. Corporation (Cont’d) AdvantagesAdvantages –Stockholders are not personally liable for the debts of the corporation –Corporations continue to exist even if stockholders sell their shares or die –Able to raise large sums of money by selling stocks Disadvantages –Subject to double taxation Profits are taxed and share dividends are taxed –Complicated to set-up

10. Corporate Structure

11. Franchise A contract by which a firm (usually a corporation) lets a person or group use its name and sell its goods or servicesA contract by which a firm (usually a corporation) lets a person or group use its name and sell its goods or services

12. Franchise (Cont’d) AdvantagesAdvantages –National advertising –Business is already a proven success Disadvantages –Franchiser sometimes fails to provide the necessary training and financial support to the franchisee

13. Market Structure Types of Market StructuresTypes of Market Structures Defined by characteristicsDefined by characteristics –Number of sellers –Product that is produced and sold –How easy or difficult it is for new firms to enter the market

14. Market Structure Characteristics:Characteristics: –Number of sellers –Product that is produced and sold –How easy or difficult it is for new firms to enter the market Market Structures: –Perfectly Competitive Markets –Monopolistic Markets –Oligopolistic Markets

15. Perfectly Competitive Markets Many buyers and sellersMany buyers and sellers All firms sell identical goodsAll firms sell identical goods Buyers and sellers have information about price, quality, supply, etcBuyers and sellers have information about price, quality, supply, etc Barriers to entry are fewBarriers to entry are few –Example: Restaurant IndustryRestaurant Industry

16. Monopolistic Markets The market consists of one seller The seller sells a product for which there are no close substitutes Barrier to Entry is high –Example: Cable Television

17. Antitrust Laws Laws that are meant to control monopoly power and to preserve and promote competitionLaws that are meant to control monopoly power and to preserve and promote competition –Sherman Antitrust Act- 1890 –Clayton Act- 1914 –Federal Trade Commission Act- 1914 –Robinson- Patman Act- 1936 –Wheeler-Lea Act- 1938

18. Oligopolistic Markets Few sellersFew sellers Firms produce and sell identical or slightly different productsFirms produce and sell identical or slightly different products Barriers to entry are significantBarriers to entry are significant –Example: Breakfast CerealsBreakfast Cereals

19. Price Discrimination Exists when a seller charges different prices to different buyers, and the price differences do not reflect cost differencesExists when a seller charges different prices to different buyers, and the price differences do not reflect cost differences –Examples: Kids Free, Ladies Night, etc.Kids Free, Ladies Night, etc.

20. Wage Rate The price of labor to operate a firm or business.The price of labor to operate a firm or business.

21. Minimum Wage Law A Federal Law that specifies the lowest hourly wage rate that can be paid to workers $7.40 minimum wage x 40 hours per week $296 per week x 52 weeks__________ = $15,392 annual income

23. Labor Union An organization that seeks to increase the wages and improve the working conditions of its members.An organization that seeks to increase the wages and improve the working conditions of its members. –Can organize walkouts, boycotts, strikes in order to put pressure on employers

24. Labor Unions (Cont’d) Closed ShopsClosed Shops –An organization that hires only union members –Employees must join the union before they hire in Made illegal by the Taft-Hartley Act (1947)Made illegal by the Taft-Hartley Act (1947) Union ShopsUnion Shops –Requires employees to join the union within a certain time after being hired Legal in many statesLegal in many states –TCAPS & TCEA Right-to-work Laws in 22 statesRight-to-work Laws in 22 states