I want to form a
corporation
called Paul’s
Ballpark Garlic
Fries. Hey! This
is a nice segue
to the chapter on
business.
Jessica and I
want to start a
partnership
selling toilet
paper.
I want to start a
sole
proprietorship
tasting cakes.
Objectives:
1. Analyze the advantages and disadvantages of sole
proprietorships
2. Analyze the advantages and disadvantages of
partnerships
3. Explain how a corporation is formed and describe
the characteristics of a corporation
4. Explain how stocks and bonds differ
5. Analyze the advantages and disadvantages of
corporations
6. Analyze horizontal, vertical and conglomerate
combinations, franchises, cooperatives and
nonprofit organizations
12.1: Students understand common
economic terms and concepts and
economic reasoning
13.2%
14.7%
72%
Advantages of Sole Proprietorships
Ease of Start-up
Control
Profits
Let’s see: start up would be a
few fliers I could place
around town, I control all the
labor so everything I make I
keep. I run the business out
of my house so I don’t have
to worry about zoning laws. I
like that idea.
Disadvantages of Sole Proprietorships
Unlimited liability
Sole responsibility
OK, let’s
look at the
Limited growth
potential
downside. If I borrow
Lack of longevity
money for fliers and the
business goes south it is
my sole responsibility to
pay off the loan—from my
personal funds. Plus I have
to do all the tasting myself,
meaning a lot of sugar
highs—I won’t be able to
taste every day.
Key terms
Zoning: You may only
pursue certain
business activities in
certain parts of
municipalities
Key terms
Liability: responsibility for debt
Collateral: Anything of value that a borrower
agrees to give up if he or she is not able to repay
a loan
Longevity: the length of a firm’s life
Licensing laws
Ensure that service providers are properly
qualified
Hey girls. I’m
starting a
swimming lessons
business.
That’s cool, Stevie, but remember to
get a government issued lifesaving
certificate first.
Advantages of Partnerships
Ease of start-up—partnership contract outlining
the distribution of profits and losses among the
partners and outlines each partner’s
responsibilities
Justina and I just signed a
contract starting our new
partnership, Hats for
Hotties. I’m the brains and
Justina provides the
muscle. We both act as
models.
Advantages of Partnerships
Specialization—specific business duties can be
assigned to different partners
Stevie selects the hat
Shared Decision Making
types from the
Shared Business Losses
distributer. I, uh,
ensure the distributer
gives us a fair price.
We both decide on
colors and markups
as we set prices that
we charge. If there
are financial losses,
we split them 50-50.
Disadvantages of Partnerships
Unlimited liability
Potential for Conflict
Lack of longevity
Now I’m alone. Stevie said that
Dodger hats would sell more than
Giant hats and I believed her. We
took a bath and had to pay for the
unsellable Dodger hats from our
own funds. So we had a fight and
dissolved the partnership. It only
lasted a week. I feel like such a
loser (like the Dodgers.)
General Partners vs. Limited Partners
General partners have equal decision-making
authority and unlimited liability. Limited partners
have little participation in decisions, but their
liability is confined to the amount of money they
invested.
I’m glad we
had a general
partnership.
I wish we had
had a limited
partnership,
like my
parents
suggested.
Forming a Corporation (Paul’s Ballpark Garlic Fries)
Apply for a state license—articles of incorporation
Issuance of a corporate charter by the state
Owners/Shareholders elect
Board of Directors select
Corporate officers hire
Vice Presidents
Department Heads
Employees
Stock, dividends, common stock, preferred
stock
Stock represents ownership of the firm issued in
portions known as shares
Dividend: profit paid to shareholders
Common stock provides shareholders with a
voice in how the company is run and a share in
any potential dividends
Preferred stock provides guaranteed dividends—
paid before any received by holders of common
stock—but does not grant shareholders a voice in
running the corporation
Bailey, Robert
and I each own
200 shares of
preferred stock
in Paul’s
Ballpark Garlic
Fries and we
just got a
dividend at
$2.00 per share.
Yaow!
Corporate bonds
Corporate bonds are certificates issued by a
corporation in exchange for money borrowed
from an investor
Stocks represent ownership; bonds indicate that
a corporation is in debt to the person who holds
the bond. The bondholder does not own any
part of the company.
Laurie is happy right now. But if
Paul’s Ballpark Garlic Fries drops to
50 cents a share, she will lose most
of her investment. I’ll still get back all
my investment plus 6.5% interest on
my bonds held in Amy’s Trombones,
Inc., no matter what happens.
Principal and Interest
Principal: the actual amount of money borrowed
Interest: amount the borrower must pay for the
use of funds, generally calculated in percents
Miss Becky
is such a
good money
manager.
I’m a lucky
dude!
The remaining
principal on the
house is
$90,000 and
that means
about $8,000 in
interest, at
4.5%.
Advantages of Corporations
Limited liability (loss for stockholders is limited
to the amount invested)
Separation of ownership from management—
utilization of specialists to perform complex
management tasks
Ease in raising capital (sale of stocks and
bonds)
Longevity
I don’t care what Emily
thinks. My liability is
limited to what I invested
(easy come, easy go),
and Paul’s Ballpark
Garlic Fries will last
forever, ‘cuz are soooo
tasty. Plus they hire
specialists to run the
company and if they
need more money it’s
easy to get.
Disadvantages of Corporations
Charters are expensive and difficult to obtain
Federal and state governments regulate
corporations
Slow decision-making process
Stockholders are far removed from the actual
running of the business
Stockholders experience lack of control
Corporate profits are taxed twice
Yeah, I think I’ll pick that hot
girl I met at the last general
membership meeting to
serve as the proxy for my
shares vote at the next
corporate meeting.
Andrew Carnegie tried to buy out
competing steel producers
through a process called
horizontal consolidation.
Companies producing
similar products merge
Carnegie achieved
a near monopoly—
controlled 80% of
U.S. steel production.
Carnegie attempted to
control entire steel industry
Vertical integration—bought
out all of his suppliers
Coal/iron mines
Ore freighters
Railroads
Total control over
quality & cost of steel
Conglomerates
Horizontal,
Vertical & Conglomerate
Combinations
Mergers of companies producing unrelated
products--Pepsico
Advantages & Disadvantages of Combinations
Efficiency—centralizing decision making within an
industry
Potential for lower costs—buying an existing business
is often less expensive than building new plants and
offices, hiring new employees and acquiring additional
financial capital to expand
Easier to acquire financial capital—bank loans and
more shareholder investment
Combinations can lead to increased unemployment
Reduced competition
Franchises
Cooperatives
Businesses owned collectively by their
members
Purchasing cooperatives
Marketing cooperatives
Service cooperatives
Nonprofit Organizations
Structured like a corporation
Unlimited longevity
Revenues generally come from charitable
contributions or events such as the Relay for Life
Income not taxed by the government
Two summers ago,
Laurie Baxter made
me do a pull up.
Man! Did I labor
knocking out that pull
up. That’s a nice
segue into this
chapter on labor.
You people
don’t know
what labor is!
In my day,
working in
Washington’s
grist mill, we
REALLY had
to labor!!!
Objectives:
1. Describe factors that affect workers entering the
labor force
2. Explain how the U. S. labor force has changed
3. Analyze how the U. S. government affects labor
4. Understand the history of the labor movement in
the United States
5. Describe how labor unions are organized
6. Identify the main challenges facing unions today
7. Examine how government attitudes toward labor
unions have changed
8. Understand the major issues that are discussed in
labor contract negotiations and how both sides
reach a contract agreement
12.1: Students understand common
economic terms and concepts and
economic reasoning
12.4: Students analyze the elements of the
U. S. labor market in a global setting
The U. S. Labor Force
All people who are at least 16 years old and are
working or actively looking for work.
The civilian labor force makes up about 98
percent of the working population while the
military comprises the other 2 percent
Bounty
Party planners
hunter pays
get pretty
great
OK,
I need
job.
Food so
service
pays a
crappy
good wages,
and I have
and Ithe
have the
wages,
but
it takes
minimal
What
kind
should
marksmanship
requisite
skills
skills.
(I love
ButI I
skills (and I have them.)
games.)
don’t
like
The
the working
working
try
to
get?
I’d like
The working conditions
conditions
conditions are
and,usually
because
pretty
of
one
with
goodbut
aren’t
always
great,
I
good
school
andI have
I could
to work
stay here
close
could
work
close
to
home.
wages—at
least
to
and
home.
can’t Plus
travel.
I’d But,
get
to
hey!
play
I
Plus I’d get all the food I
games
could
shoot
and per
eat
people—now
lots
of fun
$15.00
hour.
could eat and market trends
that’s
food and
an intrinsic
market reward.
trends
OK,
now,
what
skills
indicate
people
always
want
indicate
And, there
people
will always
always be
want
a
to
eat.
do
I have?
good
needparties
for bounty
for their
hunters!
kids.
The U. S. Labor Force—Unemployment 2011
Industrialization
Capital-intensive—dependent on machines to
produce goods; agricultural economies are labor
intensive
Women in Today’s Labor Force
60% of America’s women are members of the
labor force, compared to 75% of America’s men
Education and Salary/Unemployment 2009
Equal Pay Act of 1963 & Civil Rights Act of 1964
Equal
The
Civil
PayRights
Act ofAct
1963:
of 1964
requires
protects
that employers
workers
pay the
from
employer
same wages
discrimination
to male and
based
female
on race,
workers
sex,
who perform
religion,
or national
the same
origin.
job. The act also
established the Equal Employment Opportunity
Commission (EEOC)
Affirmative Action
Making up for patterns of discrimination against
women, members of minority groups and others
who were traditionally disadvantaged in the
workplace. Programs were aimed at eliminating
racial and gender bias in employment practices.
Resulted in quotas.
Students, my G’Pa Pete
wants you to make another
chart based on the following
slides. Call it the Supreme
Court landmark decision
chart.. You will also use it
when you study government.
Name of Case
Regents of the U.
of C. v. Bakke
Year
1978
Key Points of the Decision
Reverse discrimination
Ruled against affirmative
action and Bakke admitted
to UC Davis Med. School
But said affirm act. OK
A landmark case from the
Warren Burger Court had
to do with “reverse
discrimination” under the
affirmative action issue:
Regents of the University
of California v. Bakke
(1978)
Allan Bakke, 35 year old Caucasian, had twice
been rejected for admission to the UC Davis
medical school. The school reserved 16 places in
each entering class for “qualified minorities” as
part . . .
. . .of the university’s affirmative action program,
in an effort to “redress long-standing, unfair
minority exclusions from the medical profession.”
Bakke’s college GPA and MCAT scores
exceeded those of any of the minority applicants
who had been admitted ahead of him. Bakke
claimed that he was excluded from admission
solely on the purpose of race; or “reverse
discrimination.”
Issue: Did UC violate the Fourteenth
Amendment’s equal protection clause, and the
Civil Rights Act of 1964, by practicing an
affirmative action policy?
The Burger Court held that the U. C. Davis
Medical School could not reserve a certain
number of seats for minority students in an
incoming class. The quota had violated the Civil
Rights Act of 1964 because it made race the
sole factor in admissions. The Court did
maintain, however, that race could be one of
several factors to determine admissions
In 2003, my court made
a similar ruling in Gratz
v. Bollinger.
Jennifer Gratz applied to the University of
Michigan’s College of Literature, Science and
Arts with an adjusted GPA of 3.8 and an ACT
score of 25 (about 1300 old SAT). The
University of Michigan admitted using race in
making admissions decisions—its policy is to
admit virtually all qualified applicants who are
black, Latino or Native American.
Gratz v. Bollinger (2003)
Issue: Did the University of Michigan’s
use of racial preferences in undergraduate
admissions violate the Equal Protection
clause of the Fourteenth Amendment or
the Civil Rights Act of 1964?
The Rehnquist Court held that the
University’s policy did violate both laws. In
the Bakke decision the Court took into
account the fact that the University of
California provided individualized consideration to Bakke. The Univ. of Michigan
did NOT do so because each minority
applicant received an automatic 20-points.
Gratz v. Bollinger (2003)
Despite ruling against the
University of Michigan’s
admissions policy, our
Court did, however,
confirm that affirmative
action plans in university
admissions are legal and
valid under the
Constitution.
California Proposition 209 (1996)
Proposition 209 forbade state agencies, including
universities, from considering race or gender in
admissions, hiring, promotions, and firing. The
ACLU sued in federal court
claiming that the initiative
violated the U. S. Constitution.
In 1997 a federal appeals court
ruled that the amendment was
constitutional.
Fair Labor Standards Act of 1938
Set the minimum wage at 40 cents per hour.
That wage applied only to businesses engaged in
interstate commerce—trade that crosses state
boundaries. Furthermore, the law did not apply to
farm laborers, domestic servants and some other
groups. Over time it has extended to a wider
range of jobs
Labor Union
An organization of workers that negotiates with
employers for better wages, improved working
conditions, and job security
Factory wages at turn of 20th century:
$400-500 per year
$600 was considered minimum for
a reasonable level of comfort
Conditions: not great
•
Strict, monotonous schedules
•
Machines performed tasks once
•
valued in artisans
•
Impersonal & demanding system
•
6 days/week; 10 hours/day
•
Many unsafe/unhealthy
Most disturbing aspect of factory labor:
loss of control over work conditions
Women:
•
17% of workforce
•
Lower wages than adult males
•
75% under 25
•
$6-$8 per week
•
Annual wage (1900)
Male: $597
Female: $314
Child labor
Under 16 in 1900—1.7 million
10% of all girls 10-15
20% of all boys
38 states—child labor laws
Agricultural sector jobs exempt
Children on farms: 12 hours/day
Children in factories: 10 hours/day
Canneries: 16 hours/day girls
High accident rates
Accident rate: highest in world (of any
industrialized nation)
1907: 12 railroad men a week died on
the job
Factories: thousands of workers:
occupational diseases
Lead or phosphorus poisoning
Few owners took preventive measures
1866: National Labor Union
640,000 members
Disintegrated after Panic
of 1873
Excluded women
Molly Maguires
Ancient Order of
Hibernians
Terrorist attacks to
intimidate coal
mine operators
Great Railroad Strike of 1877—the
first major national labor conflict in U. S.
Baltimore to St. Louis
Knights of Labor
Uriah S. Stephens
Open to all who toiled
Included women
Championed:
• 8-hour work day
• End to child labor
• Arbitration over strikes
• Equal pay for equal work
Leonora Barry
Women’s Bureau of the
Knights of Labor
Terence V.
Powderly
Expanded KoL
Moderate
Strikes against Powderly’s wishes led
to downfall of the union.
American Federation of Labor
Federation of Organized Trade and
labor unions of U. S. and Canada
Samuel Gompers
AFL: most important and
enduring labor group in U. S.
Association of autonomous
craft unions (mostly
skilled workers/artisans)
Goal: secure for workers greater share
of capitalism’s material rewards
Congress of Industrial Organizations
John L. Lewis, president of the
United Mine Workers, formed
the Committee for Industrial
Organizations within the AFL,
with the goal of organizing
both unskilled and skilled
workers in several industries
1937, AFL leaders (William Green),
expelled Lewis and all of the industrial
unions he helped organize
Congress of Industrial Organizations
In 1938, Lewis became president of the
New Congress of Industrial
Organizations. Under his leadership,
millions of unskilled industrial workers—
including women and African
Americans—were organized
United Steel Workers
United Automobile Workers
United Mine Workers
Today AFL & CIO are united
Reasons why organized labor failed
to make greater gains
Wages for works rose hardly at all
Low wages could not keep up with
the rising cost of living
Major labor organizations represented
only a small portion of industrial
work force (4% in 1900)
AFL excluded unskilled workers, who
were emerging as the core of the
industrial workforce
Divided due to internal tensions
Immigrants—no long-range view in US
Open Shop vs. Closed Shop
Open shop: workers do not have to join unions;
Closed shop: workers can be hired only if they
have first joined a union
I’m so bummed. I tried
3 times to get a job as a
model with Madison’s
Models of Modesto.
Each time I was turned
down because I am not
in the union and it is a
closed shop!
Drop in Union Membership
Employer opposition—employers have tried to
make unions seem unnecessary by changing
company labor policies to recognize the
invaluable role of workers; some companies have
moved production to other
countries (Hershey’s to
Mexico)
Changes in employment
patterns
Negative public opinion
Major Labor Legislation
How do the laws listed in Figure 8.7 on p. 182
reflect changes in government attitudes toward
unions?
Most early legislation (Wilson, Franklin
Roosevelt) favored unions and increased their
power.
Since the Taft-Hartley Act of 1947, however,
labor legislation has tended to place limits on
unions
Negotiations between Labor and Management
That
may
be
a problem,
You
guys
are
jerks!
All right,
Let’s
talk
conditions.
WeI’ll
Yeah?
We
also
demand
We
demand
wages
talk
to the
ranksee,
and
file.
One
last
Erik.
You
our
rank
demand—and
this
is
a
show
COLA
Thatcommensurate
bites!
thatweoffsets
Well,
we
inflation,
also
thing,
want
a
joint
and file likes you
the seniority
stopper—that
renovate
want
3 more
an increase
sick days,
in all
the
management-labor
grievance
system.
And
forget
the
with
fair
labor
the
air
conditioning
system
committee
and
written
maximum
federal
we
government
can assurance
pay
into
open
shop—we’ll
walk
that
management
will not
inholidays
the
plant.
conditions
practice
this
I’m
labor.
our
403b
andThe
accounts.
3for
weeks
paid
away
from
thework.
tablehard
if you
retaliate
against
those
who
file
there
are
awful—it’s
on
type
of
vacation.
legitimate
grievances.
persist
that
demand.
theonworkers.
We’ll consider renovating
IfWe’ll
you
compromise
on
give
you
2 more
sick
the
airdon’t
conditioning
system,
Your
wages
And
I’m
No the
go
on
the
403bor
either
open
shop
days,
75%
of
federal
although we think conditions
accounts,
butbased
weby
willthe
are
already
management.
promotions
not
onoff
holidays,
selected
are adequate, if you back
That
oneyou
I think
we
can
go
consider
initiating
an
6%
above
the
seniority,
may
as
well
employee,
and 12
days
on
your demand
that
all
for,
but you
telldues
your
rank
employee
stock
ownership
use
your
union
to
buyand
vacation.
But,
health
norm
for
that
promotions
be your
based
on
file that
weplan.
aren’t
bluffing
on
fans,
because
there
will
be
insurance
premiums
will
seniority.
Also we want an
type ofthelabor.
other stuff.
no
renovated
air
increase
by 13%.
open shop.
conditioning.
National Labor Relations Board
At least 30% of a firm’s employees must
sign a petition informing the NLRB that they
want to hold an election to determine whether a majority
of employees want to unionize
Second, the NLRB conducts the election using a secret
ballot, which allows workers to vote without fear of
harassment or intimidation
If the majority of workers favor unionization, the NLRB
recognizes the union as the only bargaining
representative for the company’s employees
Collective Bargaining, Mediation & Arbitration
Union and management representatives meet to
discuss their goals and offer solutions and compromises
Mediation: negotiators call in a neutral third party, or
mediator, to listen to the arguments of both sides and to
suggest ways in which an agreement may be reached;
Taft-Hartley Act of 1947 established the Federal
Mediation and Conciliation Service
Arbitration: An arbitrator, like a
mediator, is a neutral third party.
Unlike in mediation, however, an
arbitrator’s decision is legally binding
Picketing
Informs the public
May arouse public support
Discourages non strikers from crossing the picket
lines to work
Primary and Secondary Boycotts
Primary boycott—organized effort to stop purchases of a
firm’s products—grape boycott
Secondary boycott: refusal to buy the goods or services
of any firm that does business with a company whose
employees are on strike (Taft-Hartley Act made
secondary boycotts illegal if workers are striking in an
attempt to make that employer join a boycott of another
firm)
Management Responses to Strikes, etc.
Hiring replacement workers (scabs)
Introducing a lockout
Asking for an injunction—a court order to prohibit
workers from striking
I am financial advisor, Justin
Martin. Those lucky people
have nothing to worry
about—I will show them
how to diversify their
winnings with a combination
of savings, and other
investments including
stocks and bonds. They,
and I of course, will make a
ton of cash! Hey! That’s
what we’re studying in this
chapter.
Objectives:
1.Describe the benefits of saving money
2.Illustrate how savings differ from time deposits
3.Explain how economists measure savings
4.Describe the goals and elements of a personal
financial plan
5.Analyze how financial investment and real
investment differ
6. Explain why and how people invest in stocks
7. Analyze the factors that influence stock prices
8. Describe how corporate and government bonds
differ from stocks
9. Identify the advantages and disadvantages of
investing in futures
12.1: Students understand common
economic terms and concepts and
economic reasoning
12.2: Students analyze the elements of
America’s market economy in a global
setting
12.3: Students analyze the influence of the
federal government on the American
economy
12.5: Students analyze the aggregate
economic behavior of the U. S. economy
Disposable income
Money available after taxes have been paid.
Saving is the non-consumption of disposable
income
This month my
disposable
income is nearly
$300.00. I’m
going to buy out
the store.
Why People Save Money
Pay large
Unexpected
Major
Amass
Purchases
long-term
wealth/leave
annual
expenses
expenses
or semiannual
inheritance bills
Check it out! My
college fund is really
Thankstaking
to the off. I think I
I’ll
Yike!inheritance
My property
have
enough
here
one
day
get
from
taxes
inDaniel!
Stanislaus
G’ma
Becky
and
Yuck,
for
at
least 2 years
County
are
two
Pete,
I’ll be
YouG’pa
really
need
at
Stanford!!!
able
to
live
a
payments
of
a new
pair
of
relaxing
life
on
My
bail
is
$950.00
in
the beach,
shoes—for
you
$20,000.00.
drinking
a and
few
November
that’s acool
MAJOR
ones.
February.
I have to
PURCHASE!
save!!!
Interest rate fluctuation
Interest rates vary according to the type of
account chosen and the financial institution in
which the money is deposited. Interest rates also
fluctuate to reflect the general availability of
money in the economy.
When the supply of money in the economy is
reduced, interest rates generally increase.
When more money is available, on the other
hand, interest rates are lower.
Compounded interest on a single investment of $1,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$ 500
12%
6%
1
2
10%
4%
3
8%
2%
4
5
Years
6
7
8
9
10
Regular Savings vs. Money Market Accounts
Regular: require only a small deposit; perhaps a
small fee if balance drops below a specified level;
offer liquidity
Money Market: Like regular,
pay interest and allow relatively
easy access to savings; viable
interest rates generally higher
than those of regular savings
accounts
Certificates of Deposit
Must keep the money in the CD for a specified
amount of time until it matures
CDs with longer maturities generally offer higher
interest because the higher rates compensate for
reduced liquidity. If you withdraw your fund
before maturity, you must pay a penalty
Both the maturity and the interest rate are
established when the account is opened and
locked in place—the interest rate will not change
until maturity date
Begin: $5,000 @ 6% per year
I’m pumped
End year
1: 5,000 because
x .06 = $300
Beginmy
Yr grandparents
2: 5,300 x .06gave
= $318
me5,618
$5,000
for = $337
Begin Yr 3:
x .06
graduation.
I’m
Begin Yr 4: 5,955 x .06 = $357
in ax 5.06
year
Begin investing
Yr 5: 6,312
= $379
CD
at
6
percent.
At
Maturity: $6,691.05
that rate, I’ll get
$6,691 and some
change in 5 years.
That’s so awesome!!!
That’s cool, Trevor, but
check this out. I got 96
mature $50.00 Series EE
Savings Bonds from my
parents. That means I will
get $4,800 plus interest on
all the bonds that have more
than 10 years of maturity—
we’re talking close to $6,000.
And I still have all the bonds
my dad bought me between
the ages of 8 and 18. I’m
gonna be rich!!!
Measuring savings
Calculating the savings rate—the percentage of
people’s disposable income that is not spent
Poopie! I
can’t put
anything into
savings this
month cuz I
spent all my
money on
shampoo
and gel.
Yay! I put
$750 into
savings
this month
due to
prudent
living.
Fixed
and
flexible expenses
Diversification
I’m a happy dude, because with my
diversified portfolio I’m set for life!
Retirement Plans
Real Investment
Real investment: use money to create a new
capital good
Capital Accumulation
Real investment increases the number of capital
goods used by producers. The expansion of the
capital goods existing in an economy is called
capital accumulation.
Infrastructure
Transportation systems (roads, bridges, harbors,
airports) and public facilities (schools)
Venture Capital
Money invested in entrepreneurial enterprises
Invests in smaller-size firms with low interest
loans
I’m happy because I
invested $1,000 in
income stocks. Go
band!
I’m happy because I invested
$1,000 in growth stocks. Go
tennis!
Yeah, but Emily, my
income stocks pay
consistent dividends.
OK, Amy. But
MY growth
stocks increase
in value more
so than your
income
stocks—so I
can sell them
and make a
larger profit. If
they split, I’ll get
two shares for
every share I
own.
And ladies, as a stockbroker, I’ll
be a link between you and the
buyer when you decide to
become the seller. Just check
and see which brokerage firm I
work for (probably Merrill Lynch.)
Stock Exchanges
Investment
banks
Buy and
New
Yorksell
Stock
large
Exchange,
blocks of American
stock
Stock
Exchange plus 5 regional stock exchanges in
other US
cities—places to
buy and sell
corporate stocks
and government
bonds
Stock Exchanges
Can now buy and sell stock online
Brokerage firms must purchase a seat on the
exchange (1,366 seats) nowadays, over $2
million
Over-the-Counter
Stock
Exchanges Stocks
Over-the-Counter: stocks not listed on the NYSE
or other stock exchanges (often stocks that do
not meet the standards set by the nation’s stock
exchanges) can trade OTC
National Association of Securities Dealers
Automated Quotations (NASDAQ)
Determining Stock Prices
Stocks typically traded in lots of 100
Brokers bid and ask and then haggle over an
agreed upon price
When many buyers compete for a scarce supply
of stock, demand pushes up the price
Similarly, when there is a large supply of stock
and few buyers, low demand pushes down the
price; thusly, demand affects stock prices
The main factors influencing demand for a stock
are corporate finances, investor expectations and
external forces
Determining Stock Prices
Corporate finances: profits and losses depicted
on published quarterly and annual earnings
reports. When investors are confident that a
corporation produces high-quality products and
has good long-term prospects, investors will buy
those “blue chip” stocks, which are in high
demand during both upswings and downswings in
the market
Investor Expectations
External Factors
Bull and Bear Markets
The Dow Jones Industrial Average records
changes in stock prices of a select group of 30
major industrial companies. Steady rise over a
period of time: bull; steady drop in prices: bear
Treasury Bonds, Bills and Notes
Treasury Bill
Treasury Note
Treasury Bond
Short-term U. S.
government security
Medium-to-long-term US
government security
Long-term U. S.
government security
Maturity ranging from 3
months to 1 year
Maturity ranging from 110 years
Maturity ranging from 1030 years
Liquid and safe
Safe
Safe
Minimum order: $1,000
Minimum order: $1,000
Minimum order: $1,000
Denomination: $1,000
Denomination: $1,000
Denomination: $1,000
Yield rate usually lower
than long-term securities
Pays at stated interest
rate semiannually
Pays at a stated interest
rate semiannually
Price fluctuation usually
lower vis-à-vis gov sec
Redeemed at face value
at maturity
Redeemed at face value
at maturity
Futures
OK, Erik,
Erik, let
futures
trading
a
Well,
me ask
you acarries
question
high
and Iinvestors
have
or
tworisk
before
give you must
an answer.
specialized
of whatever
Are you an knowledge
expert on raising
cattle
Uh, I know
the
difference
between
a
Daniel,
I
just
got
$1,000
and
my
mom
commodity
they
aretrading?
trading. I’d stick
and
cattle
bullI and
ato
cow,
butit.that’s
about
it.we
says
have
invest
You
know,
to something less risky.
Actually,
one time
I tried to
a
live
in a cattle
community
somilk
I was
bull—that
was in
nasty!
thinking about
investing
cattle futures.
What do you think?
The
answer is:it’s
to
OK, correct
you boneheads,
enforce
the
time
Thefor
Insider
a littleTrading
q and a
requirements
of 1984
and
tois
about
Sanctions
Figure
Act9.7.
of
Which
investigate
correct.
of theNumber
laws alleged
shown
2: what
violations
of
required
is the role
thethe
return
ofFederal
the of
Securities
to take
Securities
money and
orAct,
property
Exchange
punitive
action
acquired
Commission?
in anagainst
illegal
violators,manner?
and to regulate
the procedures for the
trading of securities.
That’s enough for now.
Amy, now that
I’m heading
away to
college I want
to get a credit
card. The best
I can find has
an APR of
18%. What do
you think?
Oooooo, I
don’t
know,
Maddie.
Let’s ask
an expert.
I do know
that a
credit card
will let you
buy a lot of
cool stuff.
I’ll try to answer that one, ladies.
Yes, Amy, Maddie can get a lot of
stuff and do a lot of cool things.
And a credit card will help her
establish a credit history. But
remember, if you can’t pay off your
monthly balance in total, you incur
a finance charge, and finance
charges can add up. On the next
slide, Simoncini will show some
statistics about college students
and credit cards.
That’s right, Justin. This is
an issue I’ve been
concerned with for a long
time.
The average college undergraduate in 2008 had $3,173
in credit card debt, up from $2,169 in 2004
In 2008, college seniors with at least 1 credit card
graduated with $4,138 in credit card debt, up 44% from
2004
56% of undergrads: first credit card by age 18
By graduation, 91% at least 1 card and 56% have 4
Source: USA Today, 2009
“Some critics claim that the interest rates on
credit card balances are too high.” How do banks
and credit card companies counter that claim?
There is a high number of defaults by credit
card users
Banks et al provide extended credit requiring
limited or almost no collateral
Credit card “loans” carry high processing costs
compared to other types of loans
Bankruptcy
I’m so bummed! Hats for Hotties had
to declare bankruptcy. Is there any
silver lining to this cloud?
It’s bad, Justina, but maybe not ALL bad. I’m
sure your making that move was a last resort.
This bankruptcy will remain on your credit history
for 14 years, so you will have trouble borrowing
money or receiving credit. But, the business can
start anew and rebuild. Of course, you could
marry a wealthy man. Hey! I’m available.
The correct answer is:
The
Credit
Reporting
TheFair
correct
answer
is:
the Truth
the Equal
in Lending
Credit Act
It’s
Act
of
1971
for
more
is correct.
q and
thetime
Civil
Rights
Act
of
Opportunity
of 1968. Last
Act of
one:
1974
a,
Number
this
time
2:
about
which
Figure
of
the
1968. Number 4: which
which
The
and correct
1977.
of the Number
laws
answer
shown
is:
3:
9.8.
Which
prohibits
ofshown
the laws
of laws
the
laws
which
the
prohibits
Fair
of Debt
the
billlaws
collectors
Collection
shown
discrimination
shown protects
in
granting
establishes
a 3-day
from
Practices
forbids
making
lenders
Actharassing
of 1977.
from
credit
consumers
because
against
of
things
cooling off period during
Good
rejecting
telephone
job! aLet’s
home
calls
finish
loan
to up
inaccurate
like race,
credit
gender
reports?
or
which
consumers
can
application
consumers
this chapter.
because
and theirof
religion?
cancel most credit
families
the applicant’s
and friends
race,
and
contracts except firstnational
from using
origin,other
religion
home mortgages?
methodsor
ofsex?
intimidation?
Credit and the U. S. Economy
Supply increases
Demand increases
Businesses use
borrowed money
and credit to buy
capital goods
Consumers use
borrowed money
and credit to buy
consumer goods
Financial institutions lend money
and extend credit to consumers,
businesses, and government
Individuals and businesses save
money in financial institutions
Government uses
borrowed money
and credit to pay
for public goods