Microeconomics

the study of individuals and individual businesses

Reference 6.1

HomeworkProvide definition, example and/or

illustration for 8 vocabulary terms

• business firm

• shirking

• bonds

• residual claimant

• limited liability

• unlimited liability

• assets

• dividends

• List eight businesses whose goods or services you or your family have purchased this month.

• What types of business firm are each of them?

business firm• a team

• when people working together can produce more than a person working alone

• efforts are pooled; rewards are shared

What if someone doesn’t do their fair share?

• They don’t provide effort equal to others; they get an equal share of the rewards.

•shirking

How do you prevent shirking?

• You need a MONITOR– a “boss” who makes sure everyone does their

share.

How do you make sure the “boss” does his job?

• You make his/her benefits greater than the costs….– you make him/her a residual claimant

» someone entitled to a share of the profits

– more profit = more benefit to the boss

Complete the chart as follows:

• Group #1- Complete Row #1 for Sole Proprietorships

• Group #2 – Complete Row #2 for Partnerships

• Group #3 – Complete Row #3 for Corporations

Form groups of 3

• Each group must have at least one #1 member, one #2 member and one #3 member.

• Share information to complete your charts.

• When you have finished, complete the chart to include information on franchises and cooperatives.

HomeworkProvide definition, example and/or

illustration for 8 vocabulary terms

• business firm

• shirking

• bonds

• residual claimant

• limited liability

• unlimited liability

• assets

• dividends

• List eight businesses whose goods or services you or your family have purchased this month.

• What types of business firm are each of them?

Steps to forming a Corporation

1. Promoters write up a prospectus and seek investors.

2. Articles of Incorporation must be submitted to the state for approval and registration. The state issues a charter.

3. An organizational meeting is help to select a Board of Directors and create the bylaws.

Corporations

• Corporate Structure

• Steps to forming a Corporation1. Promoters write up a prospectus and seek

investors.

2. Articles of Incorporation must be submitted to the state for approval and registration. The state issues a charter.

3. An organizational meeting is help to select a Board of Directors and create the bylaws.

Role in U.S. Economy

• Sole Proprietorships– 75% of businesses– 6% total revenue

• Corporations– 10-15 of businesses– 89% total revenue

How do corporations raise money to finance the building or expansion of their business?

• They issue bonds• a loan• “issue debt”

• They sell stocks• A share of ownership

– Share of the profits = dividend