Economics: Unit 2
Business Organizations, Labor and
Institutions
Chapter 3:
Business Organizations
?
A. Proprietorships
A sole proprietorship is a business owned
and managed by a single individual.

Sole proprietorships are the most
common form of
business organization.

Most sole proprietorships are
small. All together, sole
proprietorships generate only about 6 percent of all United
States sales.
Chapter 8, Section 1
Proprietorships


biz. owned by single person
PROS




Easy to Start
Full Control
All profits to Owner
CONS



Large liability
Limited Resources
Lack of permanence
Proprietorships
By Size of Receipts
0.9%
0.4%
By Type
3%
1%
Under $25,000
$25,000 – $49,999
$50,000 – $99,999
2%
9%
13%
$500,000 – $999,999
Mining
8%
$100,000 – $499,999
12%
3%
Construction
5%
Manufacturing
49%
$1,000,000 or more
Agriculture, forestry,
fishing services
Transportation
Wholesale trade
70%
16%
8%
Retail trade
Finance, insurance,
real estate
Services
B. Partnerships


business owned by two or more people
Started out as partnerships…
Partnerships

PROS




Easy to Start
Specialization
Larger pool of $
CONS


Unlimited liability
Conflict
C. Corporations


A corporation is a legal entity, or being,
owned by individual stockholders.
Stocks, or shares, represent a stockholder’s
portion of ownership of a corporation.
Chapter 8, Section 3
Corporations


STOCK
STOCK

biz. owned by stockholders
PROS
 Huge pool of $
 Limited Liability
 No skills needed to be
stockholder
CONS
 Difficult and expensive to start
 Complex
 Double taxes on ind. & bus.
 Little Control
Corporate Organization
Corporate Combinations
Parent Oil Co.
Oil Co. A
Oil Co. B
Oil Co. C

Horizontal mergers combine two or
more firms competing in the same
market with the same good or
service.

Vertical mergers combine two or
more firms involved in different
stages of producing the same good or
service.

A conglomerate is a business
combination merging more than three
businesses that make unrelated
Chapter 8, Section 3
products.
Oil Co. D
Steel plant
Utilities
Railroad
Mines
PROCTER and GAMBLE
















Ace is a brand of laundry detergent/liquid available in numerous forms and scents.
Always is a brand of feminine care products.
Ariel is a brand of laundry detergent/liquid available in numerous forms and scents.
Bold is a brand of laundry detergent/liquid.
Bounce is a brand of laundry products sold in the United States and Canada.
Bounty is a brand of paper towel sold in the United States and Canada.
Braun is a small-appliances manufacturer specializing in electric shavers, epilators,
hair care appliances and blenders.
Cascade is a brand of dishwashing products.
CoverGirl is a brand of women's cosmetics.
Crest/Oral B is a brand of toothpaste and teeth whitening products.
Dash is a brand of laundry detergent/liquid.
Dawn/Fairy is a brand of dishwashing detergent.[17]
Dolce & Gabanna is a brand of fine fragrances.
Downy/Lenor is a brand of fabric softener.
Duracell is a brand of batteries and flashlights.
Eukanuba is a brand of pet food.
PROCTER and GAMBLE















Febreze/Ambi Pur is a brand of air fresheners.
Fixodent is a brand of air denture adhesives.
Fusion is a brand of men's wet shave razors and is the quickest P&G brand to have
reached $1 billion in annual sales.
Gain is a brand of laundry detergent, fabric softeners and liquid dish soap.
Gillette is a brand of safety razor and male grooming products.
Head & Shoulders is a brand of anti-dandruff shampoo and conditioners.
Herbal Essences is a brand of shampoo and conditioners.
Hugo Boss is a brand of fine fragrances.
Iams is a brand of pet food.
Luvs is a brand of baby diapers.
Mach3 is a brand of safety razor and male grooming products.
Max Factor is a brand of women's cosmetics.
Mister Clean is a brand of multi-purpose cleaner, and spray sold in the United States
and Great Britain.
Olay is a brand of women's skin care products.
Old Spice is a brand of men's grooming products.
PROCTER and GAMBLE
















Oral-B is a brand of toothbrush, and oral care products.
Pampers is a brand of disposable diaper and other baby care products.
Pantene is a brand of hair care products (conditioners/styling aids).
Prestobarba/Blue is a brand of safety razor and male grooming products.
Prilosec is an over the counter drug.
Puffs is a brand of tissues.
Rejoice/Pert is a brand of hair care products (conditioners/styling aids).
Safeguard is a brand of soaps.
Secret is a female anti-perspirant brand.
SK-II is a brand of women's skin care products.
Swiffer is a brand of house-cleaning products.
Tampax is a brand of feminine care products.
Tide is a brand of laundry detergent.
Venus is a brand female hair removal products.
Vicks is an over the counter medication.
Wella is a brand name of hair care products (shampoo, conditioner, styling, and hair
color).
Corporations
TOTAL
NUMBER OF
BUSINESS
PROFITS
10%
20%
90%
Corporations
Corporations
Others
Others
80%
Chapter 8, Section 3
D. Multinationals
Multinational corporations (MNCs) are large corporations headquartered
in one country that have subsidiaries throughout the world.
Advantages: MNCs benefit
consumers by offering
products and jobs worldwide.
They also spread new
technologies, wealth and
production methods across
the globe.
Chapter 8, Section 3
STARTER: (Review) What are the benefits
and drawbacks of each type of business?
MNCS: PROMOTING GLOBALIZATION
OR AMERICANIZATION?
Disadvantages of MNCs

Critics complain that
MNCS:





Degrade cultures
Offer low paying jobs
Export wealth to
shareholders
Provide harmful
working conditions
Promote a “race to the
bottom”
Organized Labor (or Unions)
What Is a Labor Union?
A labor union is
an organization
of workers that
tries to improve
working
conditions,
wages, and
benefits for its
members.
Chapter 9, Section 1
Declines in Union Membership: Why?
“Right to Work” Laws

The Taft-Hartley Act (1947) allowed states to pass right-to-work laws.
These laws ban mandatory union membership at the workplace.
Economic Trends

Unions have traditionally been strongest in the manufacturing sector,
representing blue-collar workers, or workers who have industrial jobs.
Blue-collar jobs have been declining in number as the American
economy becomes more service-oriented.
Fulfillment of Union Goals

With the government setting standards for workplace safety, and with
more benefits being provided by both private and government sources,
some claim that the union membership has decreased simply because
their goals have been fulfilled.
Chapter 9, Section 1
Collective Bargaining
•
Collective bargaining is
the process in which union
and company
representatives meet to
negotiate a new labor
contract dealing with:
•
Wages and Benefits
•
Working Conditions
•
Job Security
UAW Collective Bargainers
Chapter 9, Section 1
Labor Conflict Options:
Mediation: is a settlement technique in which a
neutral mediator meets with both sides to try
and find an acceptable solution for both sides.
Arbitration: a settlement technique in which a
third party reviews the case and imposes a
decision that is legally binding for both sides.
Strikes: is an organized work stoppage intended
to force an employer to address union
demands. Strikes can be harmful to both the
union members and the firm.
1959 Steelworkers Strike
1987 NFL Players Strike
2007-8 Writers Guild Strike
IKEA: Outsourcing to the USA
1.
2.
3.
What are the complaints of
Ikea’s US workers?
How is organized labor in
the US and Sweden
different?
What would be the
advantages and
disadvantages of a
unionized workforce at the
Danville plant?
You are a fast food cook and your boss has just
informed you that you will be receiving a $5 an
hour raise. This means your pay is now $13 an
hour (more than any other local fast food
restaurant). How can this end up hurting you?
Supply and Demand in the Labor Market:
or how can wage increases be a bad thing?
Effects of Wage Increases
Labor Demand

The higher the wage rate, the smaller the
quantity of labor demanded by firms and
government.
A new restaurant opens in town, offering
higher wages for cooks.
Other restaurants must raise wages for
cooks in order to compete for scarce labor.
Labor Supply

As wages increase, the quantity of labor
supplied also increases.
Restaurants increase the price of meals to
cover their increased labor costs.
Equilibrium Wage

The wage rate that produces neither an
excess supply of workers nor an excess
demand for workers in the labor market is
called the equilibrium wage.
When the price of meals increases,
consumer demand decreases.
As business decreases, restaurants’
demand for cooks decreases.
Chapter 9, Section 2
LABOR WAGES (price): Supply and Demand
Trends
A Changing Economy


The economy of the United
States has transformed from a
mainly agricultural economy
in the 1800s, to an industrial
giant in the 1900s.
The computer chip has
revolutionized the economy
since its introduction in the
later 1900s.
Fewer Goods, More Services
 Overall, the United States is
shifting from a manufacturing
economy to a service economy.

As service jobs increase, the
nation is losing manufacturing
jobs.

Demand for skilled labor is
rising, and the supply of skilled
workers is increasing to meet
the demand.
Chapter 9, Section 3
Trends: Education and Earnings
Potential earnings increase with increased educational
attainment.
Chapter 9, Section 3
Trends in Wages and Benefits
Cost of Benefits Rises
 Benefits now make up about
28 percent of total
compensation in the
economy.
 For employers, rising
benefits costs raise the cost
of doing business and
decrease profits. Many firms
are turning to contingent
employment to curb benefits
costs.
Chapter 9, Section 3
Recent Labor Conflicts
Use economic reasoning and terms to explain the
difference?
Superstars!
$90 Million
$300 Million
$647 Million
Economics for Leaders
Working Poor!
$5.15
$5.85
$6.55
$7.25
Economics for Leaders
Why superstars?
Economics for Leaders
Why Not Us?
Discrimination?
Environment?
Or is it . . . .
Poor schools?
Ability?
Economics for Leaders
Demand
Ultimately, what we
are paid depends on
the market for our
services
Supply
Economics for Leaders
It starts with demand:
Willingness to pay

There are two elements:
 How much do workers produce?
 What value do consumers put on it?
Economics for Leaders
It continues with supply:
Willingness to accept

What affects workers’ willingness to accept?
1. Alternatives
2. Working conditions

Safety


Surface vs. underground mining
“Non-pecuniary”

Economics for Leaders
Prestige, co-workers, location, etc.