Economics iGCSE
The private firm as producer and employer
Types of business organisation
Effect of different business structures
Determinants of demand for f.o.p
Costs - total, average & variable costs
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71
Starter questions:
1. What is the point of having businesses in the economy?
2. What are the people called that organise a business?
3. Can you think of 3 different types of businesses .. What do you think are/is the main
difference between these different types of business?
iGCSE Economics/Yr10/SH/25-10 to 03-12
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71
WELCOME TO MODULE 4:4 - The Private Firm as a Producer & Employer
Firstly we will examine the different types of businesses
Different types of businesses are recognised by how they are:
1. Controlled & managed day-to-day
2. Owned
3. Financed - who provides the money to set up and run the business?
Pin down the definitions for different businesses
What are the advantages & disadvantages of different types of businesses
How a change in the structure of a business affects it’s ability to make profit
iGCSE Economics/Yr10/SH/25-10 to 03-12
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-65
Monday 8th Starter question:
1. What are the advantages and disadvantages of sole trader businesses?
iGCSE Economics/Yr10/SH/25-10 to 03-12
Private Firm as Producer & Employer (Year 10 Economics)
Complexity of Business Structure
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-65
Different
people
can own,
manage
& work
What sorts of businesses exist?
Large
National
Company
Many
people
own,
manage
& work
Cooperatives
Group of
people
own,
manage
& work
One
person
owns,
manages
& works
Large
Multi
National
Company
Partnerships
Sole Trader
1
2-20
10’s - 1000’s
How many employees
100,000’s
Private Firm as Producer & Employer (Year 10 Economics)
Complexity of Business Structure
corporations:
References: ECONOMICS (Moynihan & Titley)Public
Ch 4:(‘nationalised’)
p50-65
Different
people
can own,
manage
& work
•Worker or consumer owned & managed
•Exists to provide benefits to members ONLY
•1 member = 1 vote (doesn’t matter how
much money invested)
•Limited liability
•Anyone can be a member if employed by
the co-op
e.g. shared buildings (e.g flats), farmers,
retail-shops, banks, funeral-director
Many
people
own,
manage
& work
Group of
people
own,
manage
& work
One
person
owns,
manages
& works
Sole Trader
1
• Day to day running according to central/local gov’t policy - legally
separate status; appointed Board of Director; financed by taxes
• To ensure access to ‘strategic’ g&s for all consumers at fair price and
standard of quality
• E.g. public transport (aviation), utilities, banking (B of E), postal, oil,
steel, BBC
• May be run for profit, as a trust or non-profit.
Large
National
Company
Large
Multi
National
Company
•Sells shares to investors (OWNERS) who are not
responsible for running the business
Cooperatives •Shareholders elect a Board of Directors - who are
responsible for running/managing the company
•Legal agreement between•Who
individuals
toshares?
own
can buy
Unconstrained = public Ltd
& manage together
Company. Constrained by current s’holders = private
•Share costs, profit and risk
Ltd(unlimited
Companyliability)
Partnerships
•Shared skills & decision making
•Shareholders get dividends (share of profit) and
•More money to invest
share of equity in return for their money investment
e.g. Dr, lawyers, accountants,
vets largest are PetroChina, Exxon Mobil,
e.g. The
Microsoft, Apple, Walmart, ICBC, China Mobile
•His own boss - make all the decisions
•Receives all profit (or loss)
•High personal investment (time & money) - works hard
•Small revenues - limited money to invest
E.g. carpenter, mechanic, newsagent, financial adviser
2-20
10’s - 1000’s
How many employees
100,000’s
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-65
Hmwk: What are the advantages & disdvantages of the different business structures?
Sole Trader
Partnership
Private Limited
Company (joint
stock)
Public
Limited
Company
(joint
stock) (in
addition to a
Private Ltd Co.)
Advantages
Disadvantages
Worker Co-Op
Consumer
Co-Op (in
addition to
worker co-op)
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p66-71
Exercise 1: Governments make it easier to start a business in recession - what are govt’s doing?
International Herald Tribune “Doors open for entrepreneurs” 05-11-2010
Exercise 2: OAK becomes a Limited Company (pg 58-59 qu 1-5)
iGCSE Economics/Yr10/SH/25-10 to 03-12
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71
Weds 10th Starter exercise: What gets a business the top global ranking?
http://www.forbes.com/lists/2010/18/global-2000-10_The-Global-2000_Rank.html
What’s the difference in the rankings:
1. Market value
2. Assets
3. Sales
4. Profits
iGCSE Economics/Yr10/SH/25-10 to 03-12
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71
Multinational Companies:
• Companies which operate in multiple countries, although HQ often in one
country
•
These companies are largest in the world, employing 000’s of people
•
•
US and China dominate the list of top 10 largest global companies
Netherlands (Shell), UK (HSBC, Unilever, BP), Russia (Gazprom), Australia/US
(BHP Biliton) and Brazil (Petrobras).
•
Some of these companies are larger than many countries total GDP - of the top
150 economic entities 95 are corporations (larger than Saudi Arabia,
Indonesia, S.Africa, Denmark), 55 are countries.
iGCSE Economics/Yr10/SH/25-10 to 03-12
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71
ADVANTAGES:
• Able to sell more than other
company structures - because they
can access more consumers
• Avoid transport costs (because
always based ‘locally’)
• Can take advantage of different wage
levels across the world and specialise
activity where wages lowest
• Economies of scale
• Less chance of running out of cash
• Less chance of suffering from shifts
in consumer demand - they have
economies of scope
• Can carry out lots of Research &
Development
• Domestic governments value their
jobs, consumer income creation and
corporate tax revenues
DISADVANTAGES
• Can create massive employment ..
And then unemployment if they
switch factories to chase lower
wages. Workers have little control
over jobs.
• Can switch the creation of profits to
the lowest tax regime country
• Force local, competing firms out of
business - unemployment
• May exploit workers - workers have
limited power to negotiate, MNCs
switch to countries where govt’s
have lower inspection, bureaucracy,
health & safety requirements (.e.g
developing countries)
• MNCs may interfere with govt power
- they have a strong bargaining hand
over lower income countries
iGCSE Economics/Yr10/SH/25-10 to 03-12
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71
Assignment (due Nov 17th): Provide a well-reasoned explanation for the typical business structure
found for a specific product or service in the market place
Objective:
In order to assess your knowledge of different business structures, you will select ONE
product or service and describe the best ownership, finance and management structure for
this business:
1.
Executive summary: What product or service have you chosen? What interests you
about this product or service? Write 2-3 paragraphs
2.
Market Analysis: What type of company/business structures dominate in the market for
product or service? Pick at least 5 companies that provide your chosen product/service
(try to pick a variety – small and large companies) and create a comparison table
3.
Reason: Explain why this type of company/business structure best suits your chosen
product. Would you do anything different to the ownership, finance or management
structure if YOU were the Chief Executive? Write 2-3 paragraphs
iGCSE Economics/Yr10/SH/25-10 to 03-12
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71
Weds 17th Starter activity 1 - Question Time
Each team will explain their chosen product/service (3mins each)
Members of the class will ask questions until they can fill in their question sheets:
1.
What is the product/service you chose
2.
Describe the typical business structure for your product/service example - give
at least 3 descriptive features
3.
Confirm typically how the business is controlled and managed day-to-day?
4.
Confirm typically who owns it
5.
Confirm typically how the business is financed?
iGCSE Economics/Yr10/SH/25-10 to 03-12
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p69-71
How the government gets involved in running or owning companies:
What does ‘the government’ mean?:
• Central - decisions of national importance:
– Security & defense
– Setting interest rates and collecting taxes (monetary policy)
– Making laws and regulations (e.g. enforcing minimum wages, days holiday per year,
minimum education entitlements, carbon emissions)
– Providing services for the benefit of all society (public goods) - schools, hospitals,
major roads etc
• Local - given responsibility by central government:
– Make decisions that affect the local area e.g. How many schools & hospitals,
maintaining roads, new housing, refuse collection, shopping & leisure facilities (e.g.
playgrounds)
• Government agencies - non elected organisations that are given responsibility
for specific activities (e.g. local health services)
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p69-71
How the government gets involved in running or owning companies:
Public corporations - owned or controlled by government (centrally or locally):
• Day to day running according to central or local government policy (it’s political)
• Have a legally separate status, an appointed Board of Directors, financed by taxes
• Why? To ensure access to essential or ‘strategic’ goods and services for all consumers at a
fair price and reliable quality:
– Post office, Civil Aviation Authority, BBC, NHS, Bank Of England
• Before 1997: British Railways.
• Further back: British Telecom, British Gas, British Petroleum (BP), British Steel, various
utilities companies (water, electricity, gas)
• May be run for profit or not-for-profit.
Private Firm as Producer & Employer (Year 10 Economics)
References: ECONOMICS (Moynihan & Titley) Ch 4: p69-71
What are the advantages of nationalised industries:
• They can act solely in the public interest (not for shareholders profits)
• Some industries produce large EXTERNAL costs that are hard to measure and
allocate specifically because “not my fault” mentality is possible (e.g. pollution):
• Market price to the supplier is too high (because he doesn’t consider all
costs) so the supplier thinks it’s more profitable than it is and over-supplies
• Nationalised industries can consider ALL social costs when setting prices and
produce a more responsible ‘economic’ level of supply
• Some industries produce large EXTERNAL benefits that are hard to identify in the
short term (e.g. education & public transport) so they don’t get priced properly
by the market:
• Market price is too LOW … So there is under-supply
• Nationalised industries can consider all social benefits and set prices low
enough to be affordable/accessible to all because consumption benefits
everyone in society (e.g. vaccines)
RECAP - For example, the private costs of providing public train transport are
VERY high but many of the benefits are external – so market misses them
External Costs
External Benefits
• Rural Vs urban connections - little demand but
crucial service to rural communities
• Happiness to leisure travelers
• Jobs are possible in rural locations
• Business transport costs are shared – so smaller
businesses can trade in non-local (regional)
markets up
• Increased convenience
• Lower risk – no ‘sunk’ capital costs, only a
‘usage’ fee
• Lower congestion
• Less pollution
Private/Market
Costs
• Capital/investment costs – engines, coaches,
tracks, signal boxes, network of station buildings
• Maintenance costs
• Running costs – diesel/oil and electricity
• Labour (skilled and unskilled wages)
• Marketing & sales (ticketing)
• Finance costs (e.g. loans)
• Income tax
Private/Market
Benefits
• Sales revenue – business/firm
•Jobs & training & salary – employees
• ‘enjoyment’ and convenience of travel – direct
consumer
• Corporation income taxes - government