Unit Two
Review
1. When two or more companies
that are involved in the same line
of business join together…
1. When two or more companies
that are involved in the same line
of business join together…
Horizontal Merger
2. What is an oligopoly?
2. What is an oligopoly?
Imperfect competition…when a few
very large companies control the
supply – like cereal companies or
aluminum.
3. What is insider trading?
3. What is insider trading?
Selling or buying stock based on
information that nobody else has.
4. What is / are economies of scale?
4. What is / are economies of scale?
The fact that a large company can
often provide goods for much less
than many small companies – steel
mills, large ones much more
productive than smaller ones.
5. What are dividends?
5. What are dividends?
Your share of a company’s profits,
if you own stock, of course.
6. What’s the problem with
partnerships?
6. What’s the problem with
partnerships?
High degree of liability (everyone
involved, even silent partners are
held liable for debt), limited
amount of capital.
7. When you buy stocks and later
you sell those stocks for more
money than you paid for them.
That profit is called?
7. When you buy stocks and later
you sell those stocks for more
money than you paid for them.
That profit is called?
Capital Growth
8. What is an S Corporation?
8. What is an S Corporation?
Like a small corporation, the
owners (less than 75), get taxed
like a partnership rather than a
corporation – avoids double
taxation
9. What is an LLC?
9. What is an LLC?
Limited Liability Corporation, really
just a partnership which protects
the partner’s personal assets…the
business is still responsible for the
debts of the business, though.
10. What is the advantage of being
a bond holder over being a stock
holder?
10. What is the advantage of being
a bond holder over being a stock
holder?
If the company goes bankrupt,
bond holders get paid before the
owners.
11. Why has productivity in the US
increase over the years?
11. Why has productivity in the US
increase over the years?
Quality of the workforce,
increasing investment of money
and training of workers, improved
infrastructure, innovations
(internet etc.)
12. What are assets?
12. What are assets?
Things a company owns that is
worth money, tools, tucks,
buildings, accounts receivable…
13. What are the advantages of
business expansion?
13. What are the advantages of
business expansion?
Division of labor;
Quantity Discounts;
Availability of Specialized Machinery;
Easier access to credit;
Research, development and by
products.
14. Why do economists and other
bother to watch the stock
exchanges?
14. Why do economists and other
bother to watch the stock
exchanges?
Great place to find out the price of
stocks, but the exchanges are
“leading economic indicators” –
meaning before bad things happen
elsewhere in the economy, they
happen there first.
15. What are liabilities?
15. What are liabilities?
A company’s debt, or things they
owe money to.
16. What is collusion?
16. What is collusion?
When two or more companies or
business leaders get together and
set prices in an attempt to limit
competition…illegal.
17. What is creative destruction?
17. What is creative destruction?
Joseph Schumpeter’s idea that
capitalism exists in a state of flux,
or change, that old businesses
give way to new – creative
destruction.
18. When two or more companies
engaged in different stages of
producing the same good or
service join together…
18. When two or more companies
engaged in different stages of
producing the same good or
service join together…
Vertical Merger
19. When it comes to
corporations, what is a proxy?
19. When it comes to
corporations, what is a proxy?
Something you fill out, as a share
holder, that allows someone else to
vote for you on corporate affairs.
20. What are government owned
corporations?
20. What are government owned
corporations?
A business the government owns
to do a job that otherwise wouldn’t’
get done. The post office, NFTA,
TVA, Niagara Power Plant…
21. What is a cartel?
21. What is a cartel?
When suppliers involved in the
same business, work together in
an attempt to limit the supply of
their product, like cocaine or oil.
Illegal in America (collusion) we
deal with cartels all the time
22. How do we determine the price
of stocks?
22. How do we determine the price
of stocks?
Through open trading on stock
exchanges utilizing the tried and
true supply and demand method.
23. What is a conglomerate?
23. What is a conglomerate?
When two or more companies
involved in manufacturing
completely different products join
together, Kraft Cheese, Marlboro
Cigarettes & Keebler Cookies
24. Caveat Emptor means?
24. Caveat Emptor means?
Let the buyer beware…the onus for
getting all the necessary
information on stocks is on the
buyer, not the seller.
25. Why has productivity
increased over the years?
25. Why has productivity
increased over the years?
 Quality of the labor force
 Increasing capital investment of
worker
 Infrastructure
 Innovations
26. What are retained earnings?
26. What are retained earnings?
Profits of a business that are not
distributed to the ownership.
Major source of funding for
businesses.
27. What is a public franchise?
27. What is a public franchise?
A government granted monopoly
that allows a business firm to sell a
service or good in a particular
area…cable company, beer vendor
at the ball park…
28. What are patents for?
28. What are patents for?
They protect the person who
invents something or creates some
process or product people need.
29. What are the disadvantages of
a corporation?
29. What are the disadvantages of
a corporation?
Double taxation and difficult and
expensive to form
30. When the post office hires
someone from the community to
do something the post office could
not do, what is that called?
30. When the post office hires
someone from the community to
do something the post office could
not do, what is that called?
Privatization
31. What are the three sources
businesses utilize for short-term
funds?
31. What are the three sources
businesses utilize for short-term
funds?
 Trade credit – suppliers give
merchandise you can pay for later
 Bank loans; promissory notes or
lines of credit
 Retained earnings – money they
make, major source of funds
32. Why is demand for farm goods
inelastic?
32. Why is demand for farm goods
inelastic?
Harvest comes but once a year and
we can only eat so many bananas
before they go bad…we’re not
going to buy 10 dozen eggs just
because they’re on sale!!
33. What is double taxation?
33. What is double taxation?
After a business pays all its
expenses, what is left is the profits.
Then, the government takes taxes
from those profits, when you get
your share of those profits, you
also have to pay taxes.
34. What is product
differentiation?
34. What is product
differentiation?
When a supplier of a good
attempts to make their product
different than the other products
that are like it…Post Alpha-Bets vs.
Kellogg’s Frosted Flakes
35. For a monopoly to occur, what
must be present?
35. For a monopoly to occur, what
must be present?
Single supplier, no close
substitutes, difficult for any other
business to enter the market
36. What is a cooperative?
36. What is a cooperative?
When buyers band together to buy
things at a discount, or when
sellers get together to jointly
manufacture a product (like
Upstate Farms Milk).
37. What are cooperatives?
37. What are cooperatives?
Well, a cooperation among fellow
buyers or sellers, the idea of
bonding together to either sell or
buy something that benefits all –
BJ’s Wholesale, Upstate Farms
Milk cooperative
38. What is equity financing?
38. What is equity financing?
When a business raises money by
selling shares of its own stock.
39. What are the advantages of a
corporation?
39. What are the advantages of a
corporation?
Limited liability (stock holders not
responsible for debts of the
corporation), Unlimited Life (can
go on forever) and ease of transfer
(easy to sell your interest in that
business – stock exchanges)
40. What are or are, the life blood
of business?
40. What are or are, the life blood
of business?
Profits
41. How is the division of labor an
advantage of business expansion?
41. How is the division of labor an
advantage of business expansion?
It allows a company to break down
the total production process into a
series of simpler tasks, where OJT
becomes easier and each job is
easier.
42. How is quantity discounts an
advantage of business expansion?
42. How is quantity discounts an
advantage of business expansion?
Large companies can buy things
cheaper than smaller
companies…Wal-mart can get
things cheaper than the mom and
pop businesses.
43. A business charter
43. A business charter
From the government, allows a
corporation to form and sell shares
of their company in the form of
stocks.
44. What are the advantages of a
sole proprietorship?
44. What are the advantages of a
sole proprietorship?
Get to keep all the profits, you’re
your own boss, easy to start up.
45. What is diseconomies of
scale?
45. What is diseconomies of
scale?
When a business gets too large,
hard decisions have to be made,
lay offs, down sizing, etc.
46. A business charter is/does?
46. A business charter is/does?
Allows a business to start up, and
sell a certain amount of stocks.
47. Buying on Margin means?
47. Buying on Margin means?
Buying stock with borrowed
money (major cause of the great
depression, but still allowed today
under certain circumstances)
48. How is availability of
specialized machinery an
advantage of business expansion?
48. How is availability of
specialized machinery an
advantage of business expansion?
They can buy larger and more
practical use of very specialized
machinery…a tool that only puts
tops onto strawberry jam jars.
49. How is easier access to credit
an advantage of business
expansion?
49. How is easier access to credit
an advantage of business
expansion?
GM, Ford, Wal-Mart, Target and the
like have a better chance of getting
a large loan for expansion rather
than John & Mary’s sub shop.
50. How is research &
development and by products an
advantage of business expansion?
50. How is research &
development and by products an
advantage of business expansion?
Large companies can afford the best
& the brightest minds for research &
development – research leads to
discovery, development of profitable
by-products.
51. What are copy rights?
51. What are copy rights?
If you’ve written a song or poem,
maybe a screen play or movie,
every time that work is used, you
get paid…also keeps others from
stealing your work.
52. What is meant by
Concentration Ratio?
52. What is meant by
Concentration Ratio?
It’s a way of measuring whether we
have a monopoly or not…100 to 90
= strong monopoly power (like
cereal companies) or 20, like in the
cosmetic industry.
53. What is a holding company?
53. What is a holding company?
A company formed with the intent
of owning a controlling interest in
different businesses.
54. What are, or what were trusts?
54. What are, or what were trusts?
This is a large business monopoly
whose shareholders place control
of the business in the hands of
trustees.
The End!