Roles and Roles and Functions of Functions of

Various Economic Various Economic Institutions & Institutions &

Business Business Organizations Organizations

(8.07)(8.07)J. WorleyJ. Worley

Types of BusinessesTypes of Businesses Sole ProprietorshipSole Proprietorship

Business owned by an individual or members of Business owned by an individual or members of a housea house

Unlimited Liability- Owner is responsible for all Unlimited Liability- Owner is responsible for all debts incurred by the businessdebts incurred by the business

Limited Life- Cease to function at the same time Limited Life- Cease to function at the same time that their owners dothat their owners do

PartnershipPartnership Business in which two or more people pool their Business in which two or more people pool their

resources and share the risks and profitsresources and share the risks and profits Gov’t provides help for both of these Gov’t provides help for both of these

through SBAthrough SBA AKA- Small Business AssociationAKA- Small Business Association

Types of Businesses Types of Businesses (cont.)(cont.)

CorporationCorporation Firm that exists as a legal entity in the same way a Firm that exists as a legal entity in the same way a

person does which is usually owned by a number of person does which is usually owned by a number of shareholdersshareholders

Shareholders buy stock in the corporation which Shareholders buy stock in the corporation which grants them a share of ownership in the businessgrants them a share of ownership in the business

Limited Liability- Shareholders lose only what they Limited Liability- Shareholders lose only what they investinvest

Bonds are means of loaning moneyBonds are means of loaning money Unlimited Life- Live on after the death of an individualUnlimited Life- Live on after the death of an individual Dividends- Payments made to shareholders from the Dividends- Payments made to shareholders from the

profits of the firmprofits of the firm

Types of Businesses Types of Businesses (cont.)(cont.)

CooperativesCooperatives Large number of producers pool their Large number of producers pool their

resources togetherresources together FranchisesFranchises

Businesses in which sole proprietors and Businesses in which sole proprietors and partnerships purchase the local rights to a partnerships purchase the local rights to a trademark corporationtrademark corporation

EX- McDonaldsEX- McDonalds

Organized LaborOrganized Labor Labor UnionsLabor Unions

Organization of workers who come together to Organization of workers who come together to engage in collective bargaining with employersengage in collective bargaining with employers

Collective Bargaining- Negotiating wages and Collective Bargaining- Negotiating wages and working conditions as a group rather than as working conditions as a group rather than as individualsindividuals

Craft UnionsCraft Unions Groups of skilled laborers of the same occupation Groups of skilled laborers of the same occupation

(NEA)(NEA) Industrial UnionsIndustrial Unions

Workers within the same industry who may be of Workers within the same industry who may be of various skill levels (United Auto Workers)various skill levels (United Auto Workers)

Settling Disputes Between Settling Disputes Between Labor & BusinessLabor & Business

MediationMediation A neutral 3A neutral 3rdrd party gets involved to help party gets involved to help

labor and employers come up with a solutionlabor and employers come up with a solution ArbitrationArbitration

Involves a 3Involves a 3rdrd party whose decision is legally party whose decision is legally bindingbinding

StrikeStrike When workers refuse to work until owners When workers refuse to work until owners

meet their demandsmeet their demands Lock-OutLock-Out

Employees are not permitted to return to Employees are not permitted to return to workwork

Anti-Trust LawsAnti-Trust Laws Anti-Trust laws were passed to prohibit Anti-Trust laws were passed to prohibit

monopoliesmonopolies Social Security Act (1935)- Provided income for Social Security Act (1935)- Provided income for

retirees and widespread unemployment benefitsretirees and widespread unemployment benefits National Labor Relations (1935)- Gave employees National Labor Relations (1935)- Gave employees

the right to join unions without interference from the right to join unions without interference from employees and to choose representatives for the employees and to choose representatives for the purposes of collective bargainingpurposes of collective bargaining

Fair Labor Standards Act (1938)- Laws Fair Labor Standards Act (1938)- Laws restricting child labor, establishing a minimum restricting child labor, establishing a minimum wage, and regulating workplace safetywage, and regulating workplace safety

Taft-Hartley Act (1947)- Prohibited closed shop Taft-Hartley Act (1947)- Prohibited closed shop rules that forced employees to hire only union rules that forced employees to hire only union workersworkers

Investment Investment Decisions Made by Decisions Made by

Individuals, Individuals, Businesses, & Gov’t Businesses, & Gov’t

(8.08)(8.08)

InvestmentsInvestments Mutual Funds- Money pooled from a number Mutual Funds- Money pooled from a number

of investors to buy a range of stocksof investors to buy a range of stocks Investors money is dispersed among several Investors money is dispersed among several

companiescompanies Pension Funds- Mutual funds set up by Pension Funds- Mutual funds set up by

employers to allow their employees to save for employers to allow their employees to save for retirementretirement

Capital Investment/Investment Spending- Capital Investment/Investment Spending- The use of household saving to buy capital The use of household saving to buy capital for the businessfor the business

Reserve Requirement- The amount of money Reserve Requirement- The amount of money banks are required to keep on handbanks are required to keep on hand

Banking SystemBanking System Time Deposit- Accounts that individuals only Time Deposit- Accounts that individuals only

have access to after a set amount of time have access to after a set amount of time (CDs)(CDs)

Demand Deposit- Accounts that earn little Demand Deposit- Accounts that earn little interest but are available immediatelyinterest but are available immediately

Credit Cards- Card used as a loan to defer Credit Cards- Card used as a loan to defer payment to a later datepayment to a later date

Debit Cards- Looks like a credit card by Debit Cards- Looks like a credit card by serves the same function as writing a checkserves the same function as writing a check

Commercial Bank- Financial institutions Commercial Bank- Financial institutions whose main functions are to receive whose main functions are to receive deposits of money, extend credit, , and deposits of money, extend credit, , and provide loansprovide loans

Banking System (cont.)Banking System (cont.) Savings and Loan Associations- Saving Savings and Loan Associations- Saving

institutions designed to aid home institutions designed to aid home building (Mortgages on homes)building (Mortgages on homes)

Credit Unions- Cooperative Credit Unions- Cooperative associations that serve only their associations that serve only their member (SECU)member (SECU)

Federal Deposit Insurance Commission Federal Deposit Insurance Commission (FDIC)- Created by the Gov’t to make (FDIC)- Created by the Gov’t to make sure all banks, credit unions, and sure all banks, credit unions, and savings and loan association are able savings and loan association are able to cover their depositsto cover their deposits

Types of InsuranceTypes of Insurance Life- Provides money to one’s family if one Life- Provides money to one’s family if one

diesdies Health/Medical- Meant to cover health and Health/Medical- Meant to cover health and

medical expensesmedical expenses Comprehension- Cover a much wider range Comprehension- Cover a much wider range

of catastrophes of catastrophes Used by businesses to make sure things do not Used by businesses to make sure things do not

happen on their property or against their happen on their property or against their propertyproperty

Liability- Protection from claims arising from Liability- Protection from claims arising from injuries or damage to other people or injuries or damage to other people or propertyproperty

Role of Money in Role of Money in Trading, Trading,

Borrowing, and Borrowing, and Investing (8.09)Investing (8.09)

Economic ExchangesEconomic Exchanges

Currency- Coins or notes used in Currency- Coins or notes used in exchange of goodsexchange of goods

Coins- Metal currencyCoins- Metal currency Checks- Authorizes a transfer of funds Checks- Authorizes a transfer of funds

from funds from a checking accountfrom funds from a checking account Legal Tender- Promises of the Gov’t Legal Tender- Promises of the Gov’t

that a piece of paper has a specific that a piece of paper has a specific valuevalue

Functions of MoneyFunctions of Money

Medium of Exchange- Money was assessed a Medium of Exchange- Money was assessed a value and used in exchange for any number of value and used in exchange for any number of goods in a market placegoods in a market place

Collateral- Anything of value that can be used to Collateral- Anything of value that can be used to cover the value of loan should one be unable to cover the value of loan should one be unable to paypay

Credit- Defers payment to a later date with Credit- Defers payment to a later date with interestinterest

Barter- Trade goods you possess for those you Barter- Trade goods you possess for those you wantwant

Interest Rates- Amount paid to a lender in Interest Rates- Amount paid to a lender in exchange for using the lender’s moneyexchange for using the lender’s money