D3 - Microeconomics

Types of Business

Organizations

Sole Proprietorships

Easy start up

Few regulations

Full control

Sole receiver of profits

Unlimited liability

Low taxes

Most Businesses are

SP’s

D3 - Microeconomics

…Types of Business

Organizations

Partnerships

General / Limited /

Limited liability

Ease of start up

Shared decision making

Larger pool of capital

Low taxes

Unlimited liability (unless

a LLP)

Conflict

D3 - Microeconomics

…Types of Business

Organizations

Corporations

Has stockholders. Part

owners of the company

Dividend – portion of profits

paid to stockholders

Potential growth

Offers bonds – formal

contract to repay borrowed

money at a fixed rate

Limited liability

Must file a certificate of

incorporation

High taxes

D3 - Microeconomics

…Types of business

organizations

Franchise

Semi-independent

business

Pays fee to parent

company for the

exclusive right to sell a

product in a given area.

Example: Wendy’s,

Burger King

D3 - Microeconomics

Labor Force All nonmilitary people

who are employed or

unemployed

D3 - Microeconomics

Bureau of Labor and

Statistics (BLS)

Gathers and reports

data concerning

employment and

unemployment

D3 - Microeconomics

Learning Effect The theory that learning

increases productivity

and results in higher

wages.

D3 - Microeconomics

Contingent

Employment

A temporary or part-

time job.

D3 - Microeconomics

Trend in wages and

benefits.

Benefits are up

More service jobs and less

manufacturing jobs

More women and minorities

entering the workforce due

to nature of jobs changing.

Labor unions down

Glass Ceiling – invisible

barrier that prevents women

and minorities from

advancing in businesses

dominated by white males.

D3 - Microeconomics

Organized Labor Strike – Organized work stoppage

Right-to-work laws – Ban mandatory union membership

Blue Collar / White Collar

Collective Bargaining –unions and management meet to negotiate labor contracts. Negotiate benefits, working conditions and pay.

Mediation – nonbinding

Arbitration - binding

D3 - Microeconomics

Union Membership policies Closed shop – companies

must hire only union

members. Taft-Hartley Act

outlawed this

Union Shop – new

employee must join the

union after a specified

period.

Agency Shop – employees

are not required to join the

union but must pay union

dues.

D3 - Microeconomics

Three uses of money Medium of exchange

Unit of account

Store of value

D3 - Microeconomics

6 characteristics of

money

Durable

Portable

Divisible

Uniform

Acceptable

Limited supply

D3 - Microeconomics

3 sources of money’s

value (types of money)

Commodity money

Wheat / gold

Representative money

Silver certificates / IOU’s

Fiat money

Today’ Federal Reserve

money

D3 - Microeconomics

Free Banking era 1837-1863

Number of state-

chartered banks tripled

Bank runs / panics

D3 - Microeconomics

Federal Reserve

System

Created in 1913 w/ the

Federal Reserve Act

12 district banks

Helped restore

confidence in the

Nation’s Banking

System

D3 - Microeconomics

FDIC – Federal Deposit

Insurance Corporation

Created in 1933

Insures accounts up to

$100,000.

D3 - Microeconomics

Banking Today M1 – money that is liquid

(can be easily turned to

cash or used immediately) –

Cash, checking accounts,

debit cards

M2 – M1 plus “near money”.

Savings accounts, Money

market accounts

Fractional Banking System

– Bank keeps a fraction of

deposits on hand (10%) and

lend out the rest

D3 - Microeconomics

…Banking Today Mortgage – a specific

type of loan that is used

to buy real estate.

Principal – the amount

originally borrowed

Interest – the price paid

for the use of borrowed

money

ATM’s

D3 - Microeconomics

Types of Financial

Institutions

Commercial Banks

Savings and Loan

Associations

Credit Unions

Finance Companies

D3 - Microeconomics

Difference in Saving

and Investing

Saving is putting assets

away for future use.

Investing is putting

assets away w/ hopes

for future benefit -

Gaining a return

D3 - Microeconomics

Diversification Spreading out of

investments to reduce

risk.

D3 - Microeconomics

Mutual Fund A fund that pools the

savings of many

individuals and invests

this money in a variety

of stocks, bonds etc.

D3 - Microeconomics

Relationship b/w risk,

liquidity, and return

The greater the risk the

greater the

POTIENTIAL return /

loss. The greater the

liquidity, the less return.

Examples: Saving

Account / CD

D3 - Microeconomics

Three components to a

bond

Coupon Rate

Maturity

Par Value

D3 - Microeconomics

Types of Bonds Savings

Treasury Bonds, Bills

and Notes

Municipal Bonds

Corporate Bonds

Junk Bonds

D3 - Microeconomics

Securities and

Exchange Commission

An independent agency

of the government that

regulates financial

markets and investment

companies.

D3 - Microeconomics

The Stock Market Share – portion of stock. Shows ownership

Equities – Claims of ownership in a corporation

Capital Gain / Capital Loss

Stock Exchange – market for buying and selling stock.

Bull market – Market is rising

Bear Market – Market is falling.

NYSE, AMEX, NASDAQ

DJIA, S&P 500,

Crash of 1929 – “Speculation”