Economics Chapter 10Economics Chapter 10

Financing and Producing Financing and Producing GoodsGoods

Section 1: Investing in the Free-Section 1: Investing in the Free-Enterprise SystemEnterprise System

Financing- obtaining funds, or money Financing- obtaining funds, or money capital.capital.– Personal fundsPersonal funds– Friends or familyFriends or family– Financial InstitutionFinancial Institution– Selling StockSelling Stock

Cost-benefit analysisCost-benefit analysis

Should you expandShould you expand– 1. Estimate costs of expansion1. Estimate costs of expansion– 2. Calculate expected revenues, income2. Calculate expected revenues, income– 3. Calculate expected profits, revenues – 3. Calculate expected profits, revenues –

costscosts– 4. How much to borrow funds4. How much to borrow funds– 5. If profits are more than expand5. If profits are more than expand

Why People are willing to Finance Why People are willing to Finance InvestmentInvestment

Savers make interest, money used to Savers make interest, money used to financefinance

Financers make interest on the loanFinancers make interest on the loan

Businesses compete for scarce loansBusinesses compete for scarce loans

Expansion costs high = less Expansion costs high = less businesses expandingbusinesses expanding

Expansion costs low = more Expansion costs low = more expansionexpansion

Section 2: types of Financing for Section 2: types of Financing for Business OperationsBusiness Operations

Business Credit CheckBusiness Credit Check

Debt Financing-Debt Financing- Borrowing money to Borrowing money to finance a businessfinance a business

Three Kinds of FinancingThree Kinds of Financing– Short-Term Financing-Taken out for a year or Short-Term Financing-Taken out for a year or

less. Farmersless. Farmers– Intermediate-term Financing- Through loans Intermediate-term Financing- Through loans

and leasingand leasing– Long-term Financing- selling of stocks and Long-term Financing- selling of stocks and

bondsbonds

Choosing the Right FinancingChoosing the Right Financing

Interest Rates- Higher rates hold off Interest Rates- Higher rates hold off borrowingborrowing

Financial Condition of the CompanyFinancial Condition of the Company

Market Climate- Right now is a bad Market Climate- Right now is a bad time to expandtime to expand

Control of the Company- Common Control of the Company- Common stock holders may have to vote to stock holders may have to vote to offer more stock.offer more stock.

Section 3: The Production ProcessSection 3: The Production Process

Production- Changing resources into Production- Changing resources into goods.goods.Consumer goods- sold directly to Consumer goods- sold directly to individualsindividualsA. Planning- LocationA. Planning- Location– Nearness to marketsNearness to markets– Raw materialsRaw materials– Labor supplyLabor supply– Transportation facilitiesTransportation facilities

Steps in Production OperationsSteps in Production Operations

B. Purchasing- Who to buy materials B. Purchasing- Who to buy materials from.from.

C. Quality control- Checking products C. Quality control- Checking products to meet company standardsto meet company standards

D. Inventory ControlD. Inventory Control– More inventory = less capital for other More inventory = less capital for other

activities.activities.

Technology and ProductionTechnology and Production

Mechanization- combine labor and Mechanization- combine labor and machines (1700s)machines (1700s)

The Assembly Line- Ford Motor The Assembly Line- Ford Motor Company (Early 20Company (Early 20thth century) century)

Division of LaborDivision of Labor

Automation- Machines do the work Automation- Machines do the work and people oversee them.and people oversee them.

Robotics- Do all the workRobotics- Do all the work