Unit Two

Review

1. When two or more companies that are involved in the same line of business join together…

1. When two or more companies that are involved in the same line of business join together…

Horizontal Merger

2. What is an oligopoly?

2. What is an oligopoly?

Imperfect competition…when a few very large companies control the supply – like cereal companies or aluminum.

3. What is insider trading?

3. What is insider trading?

Selling or buying stock based on information that nobody else has.

4. What is / are economies of scale?

4. What is / are economies of scale?

The fact that a large company can often provide goods for much less than many small companies – steel mills, large ones much more productive than smaller ones.

5. What are dividends?

5. What are dividends?

Your share of a company’s profits, if you own stock, of course.

6. What’s the problem with partnerships?

6. What’s the problem with partnerships?

High degree of liability (everyone involved, even silent partners are held liable for debt), limited amount of capital.

7. When you buy stocks and later you sell those stocks for more money than you paid for them. That profit is called?

7. When you buy stocks and later you sell those stocks for more money than you paid for them. That profit is called?

Capital Growth

8. What is an S Corporation?

8. What is an S Corporation?

Like a small corporation, the owners (less than 75), get taxed like a partnership rather than a corporation – avoids double taxation

9. What is an LLC?

9. What is an LLC?

Limited Liability Corporation, really just a partnership which protects the partner’s personal assets…the business is still responsible for the debts of the business, though.

10. What is the advantage of being a bond holder over being a stock holder?

10. What is the advantage of being a bond holder over being a stock holder?

If the company goes bankrupt, bond holders get paid before the owners.

11. Why has productivity in the US increase over the years?

11. Why has productivity in the US increase over the years? Quality of the workforce, increasing investment of money and training of workers, improved infrastructure, innovations (internet etc.)

12. What are assets?

12. What are assets?

Things a company owns that is worth money, tools, tucks, buildings, accounts receivable…

13. What are the advantages of business expansion?

13. What are the advantages of business expansion? Division of labor; Quantity Discounts; Availability of Specialized Machinery; Easier access to credit; Research, development and by products.

14. Why do economists and other bother to watch the stock exchanges?

14. Why do economists and other bother to watch the stock exchanges?

Great place to find out the price of stocks, but the exchanges are “leading economic indicators” – meaning before bad things happen elsewhere in the economy, they happen there first.

15. What are liabilities?

15. What are liabilities?

A company’s debt, or things they owe money to.

16. What is collusion?

16. What is collusion?

When two or more companies or business leaders get together and set prices in an attempt to limit competition…illegal.

17. What is creative destruction?

17. What is creative destruction?

Joseph Schumpeter’s idea that capitalism exists in a state of flux, or change, that old businesses give way to new – creative destruction.

18. When two or more companies engaged in different stages of producing the same good or service join together…

18. When two or more companies engaged in different stages of producing the same good or service join together…

Vertical Merger

19. When it comes to corporations, what is a proxy?

19. When it comes to corporations, what is a proxy?

Something you fill out, as a share holder, that allows someone else to vote for you on corporate affairs.

20. What are government owned corporations?

20. What are government owned corporations?

A business the government owns to do a job that otherwise wouldn’t’ get done. The post office, NFTA, TVA, Niagara Power Plant…

21. What is a cartel?

21. What is a cartel?

When suppliers involved in the same business, work together in an attempt to limit the supply of their product, like cocaine or oil. Illegal in America (collusion) we deal with cartels all the time

22. How do we determine the price of stocks?

22. How do we determine the price of stocks?

Through open trading on stock exchanges utilizing the tried and true supply and demand method.

23. What is a conglomerate?

23. What is a conglomerate?

When two or more companies involved in manufacturing completely different products join together, Kraft Cheese, Marlboro Cigarettes & Keebler Cookies

24. Caveat Emptor means?

24. Caveat Emptor means?

Let the buyer beware…the onus for getting all the necessary information on stocks is on the buyer, not the seller.

25. Why has productivity increased over the years?

25. Why has productivity increased over the years? Quality of the labor force Increasing capital investment of

worker Infrastructure Innovations

26. What are retained earnings?

26. What are retained earnings?

Profits of a business that are not distributed to the ownership. Major source of funding for businesses.

27. What is a public franchise?

27. What is a public franchise?

A government granted monopoly that allows a business firm to sell a service or good in a particular area…cable company, beer vendor at the ball park…

28. What are patents for?

28. What are patents for?

They protect the person who invents something or creates some process or product people need.

29. What are the disadvantages of a corporation?

29. What are the disadvantages of a corporation?

Double taxation and difficult and expensive to form

30. When the post office hires someone from the community to do something the post office could not do, what is that called?

30. When the post office hires someone from the community to do something the post office could not do, what is that called?

Privatization

31. What are the three sources businesses utilize for short-term funds?

31. What are the three sources businesses utilize for short-term funds? Trade credit – suppliers give

merchandise you can pay for later Bank loans; promissory notes or lines

of credit Retained earnings – money they

make, major source of funds

32. Why is demand for farm goods inelastic?

32. Why is demand for farm goods inelastic?

Harvest comes but once a year and we can only eat so many bananas before they go bad…we’re not going to buy 10 dozen eggs just because they’re on sale!!

33. What is double taxation?

33. What is double taxation?

After a business pays all its expenses, what is left is the profits. Then, the government takes taxes from those profits, when you get your share of those profits, you also have to pay taxes.

34. What is product differentiation?

34. What is product differentiation?

When a supplier of a good attempts to make their product different than the other products that are like it…Post Alpha-Bets vs. Kellogg’s Frosted Flakes

35. For a monopoly to occur, what must be present?

35. For a monopoly to occur, what must be present?

Single supplier, no close substitutes, difficult for any other business to enter the market

36. What is a cooperative?

36. What is a cooperative?

When buyers band together to buy things at a discount, or when sellers get together to jointly manufacture a product (like Upstate Farms Milk).

37. What are cooperatives?

37. What are cooperatives?

Well, a cooperation among fellow buyers or sellers, the idea of bonding together to either sell or buy something that benefits all – BJ’s Wholesale, Upstate Farms Milk cooperative

38. What is equity financing?

38. What is equity financing?

When a business raises money by selling shares of its own stock.

39. What are the advantages of a corporation?

39. What are the advantages of a corporation?

Limited liability (stock holders not responsible for debts of the corporation), Unlimited Life (can go on forever) and ease of transfer (easy to sell your interest in that business – stock exchanges)

40. What are or are, the life blood of business?

40. What are or are, the life blood of business?

Profits

41. How is the division of labor an advantage of business expansion?

41. How is the division of labor an advantage of business expansion?

It allows a company to break down the total production process into a series of simpler tasks, where OJT becomes easier and each job is easier.

42. How is quantity discounts an advantage of business expansion?

42. How is quantity discounts an advantage of business expansion?

Large companies can buy things cheaper than smaller companies…Wal-mart can get things cheaper than the mom and pop businesses.

43. A business charter

43. A business charter

From the government, allows a corporation to form and sell shares of their company in the form of stocks.

44. What are the advantages of a sole proprietorship?

44. What are the advantages of a sole proprietorship?

Get to keep all the profits, you’re your own boss, easy to start up.

45. What is diseconomies of scale?

45. What is diseconomies of scale? When a business gets too large, hard decisions have to be made, lay offs, down sizing, etc.

46. A business charter is/does?

46. A business charter is/does?

Allows a business to start up, and sell a certain amount of stocks.

47. Buying on Margin means?

47. Buying on Margin means?

Buying stock with borrowed money (major cause of the great depression, but still allowed today under certain circumstances)

48. How is availability of specialized machinery an advantage of business expansion?

48. How is availability of specialized machinery an advantage of business expansion?

They can buy larger and more practical use of very specialized machinery…a tool that only puts tops onto strawberry jam jars.

49. How is easier access to credit an advantage of business expansion?

49. How is easier access to credit an advantage of business expansion?

GM, Ford, Wal-Mart, Target and the like have a better chance of getting a large loan for expansion rather than John & Mary’s sub shop.

50. How is research & development and by products an advantage of business expansion?

50. How is research & development and by products an advantage of business expansion?

Large companies can afford the best & the brightest minds for research & development – research leads to discovery, development of profitable by-products.

51. What are copy rights?

51. What are copy rights?

If you’ve written a song or poem, maybe a screen play or movie, every time that work is used, you get paid…also keeps others from stealing your work.

52. What is meant by Concentration Ratio?

52. What is meant by Concentration Ratio?

It’s a way of measuring whether we have a monopoly or not…100 to 90 = strong monopoly power (like cereal companies) or 20, like in the cosmetic industry.

53. What is a holding company?

53. What is a holding company?

A company formed with the intent of owning a controlling interest in different businesses.

54. What are, or what were trusts?

54. What are, or what were trusts?

This is a large business monopoly whose shareholders place control of the business in the hands of trustees.

The End!