Bell Work: 12-10-12If you were going to start a business, what

type of business would you start? Would you start the business by yourself, or

would you have a partner? (Explain Why)

8.1

Starting a Business:

Starting a Business:As we have discussed, people who are

willing to take a risk and start a business are called entrepreneurs.

Often entrepreneurs need help in order to start a new business

Help for Entrepreneurs:1. Government:Small Business Administration: Often helps

provide financing for startups, or new businessesSmall Business Incubator: Government funded

agency that assist new businesses -Provide advice-Provide low-rent building and supplies.-Tax breaks

Internet: Provides huge amounts of information on how to start a business. -Putting together a business plan.-Business laws-Other secrets to success.

Elements of Business Operation:

Elements of Business Operation: Every business must consider four basic elements:-Expenses: Things such as: equipment, wages, inventory, insurance, taxes, and utilities….etc.-Advertising: T.V., radio, Newspaper, flyers, or internet ads.-Record Keeping: Every business, no matter how small must have a system to track expenses and income.-Risk: every business involves risks. You must balance the risk against the advantages of being in business.

Sole Proprietorships:Sole proprietorships: Business owned

and operated by one person.-A proprietor is a person who owns a business.

Advantages and Disadvantages:Advantage:Pride of owning and receiving all of the profits

from the business.Relatively easy to start.Disadvantage:Unlimited Liability: Complete legal

responsibility for all debts and damages arising from doing business.

-Assets: All of the proprietors belonging can be seized to payoff business debts. (homes, cars, jewelry, and any other item that has value.)

Partnerships:Partnerships: Business that two or more

individuals own and operate. -Partnership agreement: is a legally binding

agreement that each partner signs, and describes the duties of each partner

Advantages and Disadvantages:Advantage:-Pride of owning a business and contributing

to that business in a specialized way, which benefits all partners.

-More money to help with start-up.-Few government regulations.Disadvantages:-Unlimited liability, much like a sole

proprietorship.-Partners may disagree on how the business

should be run.

Types of Partnerships:1.) Limited Partnership: Special form of

partnership in which one or more partners have limited liability. (Silent partner)

Advantage: Sharing in profits, while having no liability for losses beyond their original investment.

Disadvantage: Limited partner has no say in how the business is run.

2.) Joint Ventures: Partnership set up for a specific purpose just for a short period of time.

-Usually occurs when individuals or companies want to do a special project together.

-They have no desire to work together after the project is complete.

 

Bell Work 12/11/12What are the 4 elements of business

operations?

8.2

Advertising

 

Chapter 8: Advertising Notes“Advertising”

* Advertising is one of the largest industries in the United States today. * Benefits of Advertising

- Gives consumers information about products, improvements in goods and services, and availability of new products.- Increases revenue- Pays most magazine and newspaper costs and all commercial radio and television costs.

 

Chapter 8: Advertising Notes“Advertising”

* Costs of Advertising- Costly to produce, and these costs raise prices to

consumers.- Can lead people to buy items they otherwise would not want.- Radio, T.V., and newspapers supporting advertisements may be reluctant to criticize products of advertisers.

 

Chapter 8: Advertising Notes“Advertising”

* Four Types of Advertising1. Pioneer

New product, want to provide information.

 2. Competitive

Choices of similar products, it must differentiate its product by saying it is better, stronger, faster, and cheaper.

 

Chapter 8: Advertising Notes“Advertising”

3. Reminder Brief mention of product name, picture of product,

catchy slogan. 4. Institutional

To promote the company name and image. Does not promote the product.

 

Chapter 8: Advertising Notes“Advertising”

* Three Strategies of Advertising1. Slogan

Catchy jingle to help identify and remember products. 

2. Rational Appeal Use logic or reason to persuade people to buy

the product.

Examples: health foods, pain relievers.

 

Chapter 8: Advertising Notes“Advertising”

3. Emotional Appeal Testimonial from a famous person. Bandwagon

- Everyone is using the product.- Popularity: how popular you would be if you use it.

http://www.youtube.com/watch?v=8iXdsvgpwc8

Which Type of Advertising and Strategy of Advertising was used in this Ad?

http://www.youtube.com/watch?v=O-VqYLbQxJk

8.3

The Corporate World and Franchises:

Introduction:Profits are a good thing. As a sole

proprietor, you keep all profits. In a partnership, you share profits with one or several partners. In a corporation, however, the profits are dispersed among thousands of shareholders.

In this lesson you will learn why entrepreneurs incorporate, or form corporations.

Corporations and Their Structures:Corporation: is an organization owned by

many people, but treated by law as though it were a person.- can own property.- pay taxes-make contracts-sue and be sued

Stock: represents ownership rights to a certain portion of the future profits and assets of the company.

Stockholders: Are those that own the corporations stock.

Advantage of a corporation:- limited liability (only lose what you invest)

Disadvantage of a corporation:- Corporations are taxed more heavily than other forms of business organizations.

Registering The Corporation:Every state has laws governing the formation

of corporations, but most state laws are similar.

If you decide to form a corporation, you will have to file an articles of incorporation within the state you will run the corporation.

If the state agrees, you will be granted a corporate charter, or a license to operate from that state.

Types of Stock:Common Stock- gives the investor part

ownership in the corporation, a right to a percentage of future profits, and voting rights at annual stockholders meeting.

Preferred Stock- stockholders do not have voting rights in a corporation, but they are guaranteed a certain amount of dividends each year.- Dividend- Money return on money invested- if corporation goes bankrupt, owners of preferred stock are entitled to first claim on whatever value is left after debts are paid.

Naming A Board Of Directors:To become incorporated a company must

have a board of directors.You and your partners, as founders, would

select the first board. After that, stockholders would elect board members.

The board is responsible for supervising and controlling the corporation, but does not run the day-to-day operations.

Franchises:Franchise: Is a contract in which a firm,

usually a corporation, sells the right for a person or group to use its name and sell its product.

In return, the person or group makes payments and meets certain requirement.

EX: Taco Bell, McDonald’s, Hilton Hotels

Franchising:

1. Management and training support.2. Standardized quality3. National (free) Advertising4. Financial Assistance

Disadvantages:1. High franchising fees2. Strict Standards3. Purchasing restrictions4. Limited product line

Advantages:

Bell Work: 1-10-12What are two ways in which the

government protects and promotes competition in the market?

Perfect Competition:

9.1

Market Structure:In this chapter, you will learn that

businesses are categorized by market structure.

Market Structure: amount of competition a business will face.

The first type of market structure is called perfect competition, which is sometimes referred to as “pure competition”.

Characteristics of Perfect Competition:1. large market: many buyers and sellers2. similar products: sellers offer identical

products.3. information: buyers and sellers are well

informed about products.4. Low barriers to entry: sellers are able

to enter and exit the market freely.5. Independence: sellers and buyers

working together to control price is almost nonexistant.

Prices and Output:Perfect markets are efficient due to

competition.Prices are usually low.Production cost are also usually low.

Products:Perfect or pure markets usually deal in

commodities.Commodities: Products that are

considered the same regardless of who makes them.

ex: staples, paper clips, milk and other type of agriculture

Barriers to Entry:Barriers to entry: Factors which make it

difficult for new firms to enter a market.2 most common barriers to entry:1. start-up cost: the expenses that a new

business must pay before their product reaches the customer. (ex: auto industry)

2. Technology: Some market require a high degree of technological know-how. (plumbing, electrician)

Bell Work: 1/6/12What are the two most common barriers to

entry?What are commodities?

Types of Imperfect Market Structures:

9.2

Monopoly:The most extreme case of an imperfect

market is a monopoly.Monopoly: a market structure in which a

single firm controls the supply of the good or service, as well as the price.

Problem of monopolies: they can take advantage of their market power and charge higher prices.

Characteristics of a Monopoly1. One firm2. Complete barrier to entry3. Usually only one type of product available4. Complete control over prices

Types of Monopolies: 1.) Natural Monopoly: When it make

sense, and is more efficient, to allow only one business to operate. (water, Smart buses)

2.) Government monopoly: Monopoly that is created by the government itself. (ex: construction of roads, bridges)

3.) Geographic Monopoly: Monopoly caused by geographic factors. (ex: general store in a remote Alaskan town.

4.) Technological Monopoly: If you invent something you are capable of having a technological monopoly over your invention.

(ex:) patent- gives a person the exclusive right to manufacture, rent, or sell their invention for a certain number of years.

copyright- basically a patent on art or written works. Copyrights last for the life of the creator, plus 70 years.

Oligopoly:Oligopoly: A market structure dominated

by a few large, profitable firms. (ex: breakfast cereal, air travel)

Economists usually call an industry an Oligopoly if the four largest firms produce at least 70-80% of the total output.

Car companies, airlines, and phone companies are all examples of an oligopoly.

Characteristics of an Oligopoly:

1. few sellers.2. High barriers to entry.3. Identical or slightly different products.4. Non-price competition:5. Interdependence

Problems with Oligopolies:Collusion: an agreement among firms of

an oligopoly to set prices and production. (Usually used make greater profits)

Cartels: an agreement among firms to set prices and production in order to keep new firms from entering the industry.

Price Fixing- an agreement among firms to sell at the same or similar prices

* All are illegal in the United States.

Monopolistic Competition:Large number of sellers offer similar, but

slightly different products.Each firm has some control over price.Usually brand-name items such as;

toothpaste, cosmetics, and designer clothes

Competitive advertisement is very important in monopolistic competition.

When successful, advertising allows some firms to sell their product at higher prices.

Characteristics of Monopolistic Competition:1. Numerous Sellers2. Low barriers to entry3. Differentiated products4. Non-price competition5. Some control over price

Bell Work: 1-9-12List the 3 types of imperfect market

structure.

Government Policies Toward Competition:

9.3

Antitrust legislation:Antitrust Legislation: law to prevent new

monopolies or trusts from forming, and to break up those that already exist.

Sherman Antitrust Legislation: basically outlawed monopolies.

Clayton Act: Another law to protect competition. Allowed the government to make the final decision on some business mergers.

Regulatory Agencies:Besides antitrust legislation, the government

uses regulatory agencies that oversee various industries.

Fed. Trade commission, which regulates warranties, fraud in advertising.

Food and Drug Administration, regulates purity and food safety

Securities and Exchange Commission, regulates the sale of bonds, stocks and other investments

Occupational Safety and Health Admin. (OSHA): regulates workplace environments

Deregulation: Deregulation: Means the government no

longer decides what role each company can play in the market and how much it can charge its customers.

BanksTrucking industryAirlinesRailroads

Quiz:1. List the 4 types of market structures we

have discussed.2. What is antitrust legislation?3. What did the Clayton Act do?4. Which type of market structure is

characterized by many firms, that produce exactly the same type of good?

5. What is a start-up?