‘ ‘ Microeconomics’ Notes Microeconomics’ Notes Traverse City West Senior Traverse City West Senior High High Introduction To Economics Introduction To Economics
Dec 28, 2015
‘‘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