Name:_________________________________________________Date:_____________ Period:______
Fundamentals of Business
Review for Quiz #1 of Term 2 on Market Structures & Business Organizations
Market Structures – classification of a market based on the type and amount of
competition among companies in the marketplace
How do economists classify markets?
 By the number of buyers and sellers in the market
 Who has influence over the price (buyers or sellers)?
 Amount of competition
 Type of product involved
 The amount of barriers there exists to enter the market
There are 4 major types of market structures:
1. Perfect Competition: a large number of companies produce identical product
and sell it for the same price, In order for perfect competition to occur, the
following must exist:
a. Market is made up of many buyers and sellers.
b. Sellers sell identical products.
c. Buyers and sellers know a lot about products.
d. Buyers and sellers can leave market freely.
2. Monopolistic Competition: large number of companies produce similar but
not identical products
3. Oligopoly: a few very large suppliers control the market
4. Monopoly: a single supplier controls the market
Characteristics of Market Structures:
Perfect
Monopolistic
Competition
Competition
Number of
Many
Many
Companies
Variety of
Many
Some
Goods
Control Over
None
Little
Prices
Barriers to
None
Low
Entry
Advertising
None
a lot
Examples
New York
Running
Stock
sneakers
Exchange
(Nike, Asics,
selling shares
Reebok,
of stock
Saucony,
Oligopoly
Monopoly
a few
one
Some
none
Some
complete
High
complete
Some
Soft drink
companies
(Pepsi and
Coke) and fast
food
none
city water
company,
town public
works
Under Amour,) (McDonalds
and Burger
King)
Types of Business Organizations
1. Sole Proprietorship: is a business owned by one person who is responsible
for all debts and profits. It can be run from a person’s home, or storefront.
Examples include small local restaurants, barber shop, small local
landscaping business.
a. Advantages
 Easy to start
 Obtain a business license
 Complete control over business
 Owner is responsible for all debts and keeps all profits
b. Disadvantages
 Owner has unlimited personal liability (individual may have to sell
own personal property if business fails
 Difficult to obtain financing
2. Partnership: is a business that is owned by 2 or more people. A contract
details the roles and responsibilities of each partner. (Examples include law
firms, small medical or dental office and accounting firms.)
a. Advantages
 Easy to start
 Obtain a business license
 Shared control over business, risks and rewards
 Easier to obtain financing than Sole Proprietorships
b. Disadvantages
 Partners need to work cooperatively for a successful business
venture to work.
3. Corporation: is a business organization that has all the rights of an individual.
It has the right to buy and sell property and enter into legal contracts. 20% of
businesses in the US are corporations but they make up 90% of all sales.
Businesses need a charter, an official paper from the government to start the
corporation. It states how many shares of stock the corporation has. People
who own stock in company are called stockholders.
a. Advantages
 Easy to raise capital
 Owners can hire professional managers to run their company
 Shared control over business, risks and rewards
 Easier to obtain financing than Sole Proprietorships
b. Disadvantages
 Difficult to start
 More regulated than other business organizations
Functions of Business Include:
Production: process of creating, expanding , manufacturing or improving goods or
services
Marketing: process of planning, pricing, promoting, selling and distributing ideas,
goods, and services
Management: process of achieving company goals by planning, organizing,
directing controlling and evaluating resources
Finance: business or art of money management
Accounting: involves maintaining and checking records, handling bills and
preparing financial reports for a business
Types of Businesses by Activities
 Producers: business that gathers raw or natural goods
 Processors: changes raw materials into more finished product
 Manufacturers: business that makes finished product out of processed goods
 Wholesalers: distributor of good
 Retail: purchases goods from a wholesaler and sells them to consumer