‘Microeconomics’ Notes Traverse City West Senior High Introduction To Economics.

‘‘Microeconomics’ NotesMicroeconomics’ Notes

Traverse City West Senior HighTraverse City West Senior High

Introduction To EconomicsIntroduction To Economics

ShirkingShirking

• The behavior of a The behavior of a worker who is worker who is putting forth less putting forth less than the agreed- than the agreed- to –effort.to –effort.

Business FirmBusiness Firm

• An organization that uses resources to An organization that uses resources to produce goods and services that are produce goods and services that are sold to consumers, other firms, or the sold to consumers, other firms, or the government.government.– Types of Firms:Types of Firms:

• Sole ProprietorshipsSole Proprietorships• PartnershipsPartnerships• CorporationsCorporations

– FranchiseFranchise

Sole ProprietorshipSole Proprietorship

• A Business that is A Business that is owned by an owned by an individual, who individual, who makes all of the makes all of the business decisions, business decisions, receives all of the receives all of the profits / losses, and is profits / losses, and is legally responsible legally responsible for the debts of the for the debts of the firmfirm

Sole Proprietorship Sole Proprietorship (Cont’d)(Cont’d)

• AdvantagesAdvantages– Easy to form and Easy to form and

dissolvedissolve– All decisions are All decisions are

made by the made by the individual individual

– Profits are only Profits are only taxed oncetaxed once

• DisadvantagesDisadvantages– Faces Faces unlimited unlimited

liabilityliability– Limited ability to Limited ability to

raise funds for raise funds for expansionexpansion

– Usually end with Usually end with the retirement or the retirement or death of the death of the individualindividual

PartnershipPartnership

• A Business that is A Business that is owned by two or owned by two or more co-owners, more co-owners, who share all of who share all of the profits / the profits / losses, and are losses, and are legally responsible legally responsible for the debts of for the debts of the firmthe firm

Partnership Partnership (Cont’d)(Cont’d)

• AdvantagesAdvantages– The benefits of The benefits of

specialization can specialization can be realizedbe realized

– Profits of the Profits of the business is income business is income of the partners, of the partners, and only personal and only personal income taxes income taxes applyapply

• DisadvantagesDisadvantages– Faces Faces unlimited unlimited

liabilityliability and could and could incur debts from incur debts from other partnersother partners

– Decision making Decision making can be can be complicated and complicated and frustratingfrustrating

CorporationCorporation

• A legal entity that A legal entity that can conduct can conduct business in its business in its own name in the own name in the same way than an same way than an individual does individual does and is owned by and is owned by its stockholdersits stockholders

Corporation Corporation (Cont’d)(Cont’d)

• AdvantagesAdvantages– Stockholders are not Stockholders are not

personally liable for personally liable for the debts of the the debts of the corporationcorporation

– Corporations continue Corporations continue to exist even if to exist even if stockholders sell their stockholders sell their shares or dieshares or die

– Able to raise large Able to raise large sums of money by sums of money by selling stocksselling stocks

• DisadvantagesDisadvantages– Subject to double Subject to double

taxationtaxation• Profits are taxed Profits are taxed

and share and share dividends are dividends are taxedtaxed

– Complicated to Complicated to set-upset-up

Corporate StructureCorporate Structure

Secretary

A ll O the r E m plo ye es

Dept. Head

A ll O the r E m plo ye es

Dept. Head

A ll O the r E m plo ye es

Dept. Head

A ll O the r E m plo ye es

Dept. Head

Vice President

President Treasurer

Board of Directors

Stockholders

FranchiseFranchise

• A contract by A contract by which a firm which a firm (usually a (usually a corporation) lets a corporation) lets a person or group person or group use its name and use its name and sell its goods or sell its goods or servicesservices

Franchise Franchise (Cont’d)(Cont’d)

• AdvantagesAdvantages– National National

advertisingadvertising

– Business is Business is already a proven already a proven successsuccess

• DisadvantagesDisadvantages– Franchiser Franchiser

sometimes fails to sometimes fails to provide the provide the necessary training necessary training and financial and financial support to the support to the franchiseefranchisee

Market StructureMarket Structure

• Types of Market StructuresTypes of Market Structures• Defined by characteristicsDefined by characteristics

– Number of sellersNumber of sellers– Product that is produced and soldProduct that is produced and sold– How easy or difficult it is for new firms How easy or difficult it is for new firms

to enter the marketto enter the market

Market StructureMarket Structure

• Characteristics:Characteristics:– Number of sellersNumber of sellers

– Product that is Product that is produced and soldproduced and sold

– How easy or difficult it How easy or difficult it is for new firms to is for new firms to enter the marketenter the market

• Market Structures:Market Structures:– Perfectly Competitive Perfectly Competitive

MarketsMarkets

– Monopolistic MarketsMonopolistic Markets

– Oligopolistic MarketsOligopolistic Markets

Perfectly Competitive MarketsPerfectly Competitive Markets

• Many buyers and Many buyers and sellerssellers

• All firms sell identical All firms sell identical goodsgoods

• Buyers and sellers Buyers and sellers have information have information about price, quality, about price, quality, supply, etcsupply, etc

• Barriers to entryBarriers to entry are are fewfew– Example:Example:

• Restaurant IndustryRestaurant Industry

Monopolistic MarketsMonopolistic Markets

• The market consists The market consists of one sellerof one seller

• The seller sells a The seller sells a product for which product for which there are no close there are no close substitutessubstitutes

• Barrier to EntryBarrier to Entry is is highhigh– Example:Example:

• Cable TelevisionCable Television

Antitrust LawsAntitrust Laws

• Laws that are meant to control Laws that are meant to control monopoly power and to preserve monopoly power and to preserve and promote competitionand promote competition– Sherman Antitrust Act- Sherman Antitrust Act- 18901890– Clayton Act- Clayton Act- 19141914– Federal Trade Commission Act- Federal Trade Commission Act- 19141914– Robinson- Patman Act- Robinson- Patman Act- 19361936– Wheeler-Lea Act-Wheeler-Lea Act- 1938 1938

Oligopolistic MarketsOligopolistic Markets

• Few sellersFew sellers• Firms produce Firms produce

and sell identical and sell identical or slightly or slightly different productsdifferent products

• Barriers to entryBarriers to entry are significantare significant– Example:Example:

• Breakfast CerealsBreakfast Cereals

Price DiscriminationPrice Discrimination

• Exists when a seller Exists when a seller charges different charges different prices to different prices to different buyers, and the price buyers, and the price differences do not differences do not reflect cost reflect cost differencesdifferences– Examples:Examples:

• Kids Free, Ladies Kids Free, Ladies Night, etc.Night, etc.

Wage RateWage Rate

• The price of labor The price of labor to operate a firm to operate a firm or business.or business.

Minimum Wage LawMinimum Wage Law

A Federal Law thatA Federal Law that

specifies the lowestspecifies the lowest

hourly wage rate that canhourly wage rate that can

be paid to workersbe paid to workers

$7.40 minimum wage$7.40 minimum wage

x 40 hours per weekx 40 hours per week

$296 per week $296 per week

x 52 weeks__________x 52 weeks__________

= $15,392 annual income= $15,392 annual income

Labor UnionLabor Union

• An organization that seeks to An organization that seeks to increase the wages and improve increase the wages and improve the working conditions of its the working conditions of its members.members.– Can organize walkouts, boycotts, Can organize walkouts, boycotts,

strikes in order to put pressure on strikes in order to put pressure on employersemployers

Labor Unions Labor Unions (Cont’d)(Cont’d)

• Closed ShopsClosed Shops– An organization An organization

that hires only that hires only union membersunion members

– Employees must Employees must join the union join the union before they hire inbefore they hire in• Made illegal by the Made illegal by the

Taft-Hartley Act Taft-Hartley Act (1947)(1947)

• Union ShopsUnion Shops– Requires Requires

employees to join employees to join the union within a the union within a certain time after certain time after being hiredbeing hired• Legal in many Legal in many

statesstates– TCAPS & TCEATCAPS & TCEA

• Right-to-work Laws Right-to-work Laws in 22 statesin 22 states