

If you were going to start a business, what type of business would you start?
Would you start the business by yourself, or would you have a partner? (Explain Why)

8.1

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As we have discussed, people who are willing to take a risk and start a business are called entrepreneurs .
Often entrepreneurs need help in order to start a new business

1. Government:
 Small Business Administration : Often helps provide financing for startups, or new businesses
 Small Business Incubator: Government funded agency that assist new businesses

-Provide advice
-Provide low-rent building and supplies.
-Tax breaks
Internet: Provides huge amounts of information on how to start a business.
-Putting together a business plan.
-Business laws
-Other secrets to success.


Elements of Business Operation: Every business must consider four basic elements:
Expenses: Things such as: equipment, wages, inventory, insurance, taxes, and utilities….etc.
Advertising: T.V., radio, Newspaper, flyers, or internet ads.
Record Keeping: Every business, no matter how small must have a system to track expenses and income.
Risk: every business involves risks. You must balance the risk against the advantages of being in business.

 Sole proprietorships: Business owned and operated by one person.
-A proprietor is a person who owns a business.

Advantage:


Pride of owning and receiving all of the profits from the business.
Relatively easy to start.
Disadvantage:
 Unlimited Liability: Complete legal responsibility for all debts and damages arising from doing business.
-Assets: All of the proprietors belonging can be seized to payoff business debts. (homes, cars, jewelry, and any other item that has value.)

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
Partnerships: Business that two or more individuals own and operate.
-Partnership agreement: is a legally binding agreement that each partner signs, and describes the duties of each partner

 Advantage:
-Pride of owning a business and contributing to that business in a specialized way, which benefits all partners.
-More money to help with start-up.
-Few government regulations.
 Disadvantages:
-Unlimited liability, much like a sole proprietorship.
-Partners may disagree on how the business should be run.

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1.) Limited Partnership: Special form of partnership in which one or more partners have limited liability. (Silent
partner)
Advantage: Sharing in profits, while having no liability for losses beyond their original investment.
Disadvantage: Limited partner has no say in how the business is run.

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2.) Joint Ventures: Partnership set up for a specific purpose just for a short period of time.
-Usually occurs when individuals or companies want to do a special project together.
-They have no desire to work together after the project is complete.

 What are the 4 elements of business operations?

8.2

Chapter 8: Advertising Notes
“Advertising”
* Advertising is one of the largest industries in the United
States today.
* Benefits of Advertising
- Gives consumers information about products , improvements in goods and services, and availability of new products.
- Increases revenue
- Pays most magazine and newspaper costs and all commercial radio and television costs.

Chapter 8: Advertising Notes
“Advertising”
* Costs of Advertising
- Costly to produce, and these costs raise prices to consumers.
- Can lead people to buy items they otherwise would not want.
- Radio, T.V., and newspapers supporting advertisements may be reluctant to criticize products of advertisers.

Chapter 8: Advertising Notes
“Advertising”
* Four Types of Advertising
1. Pioneer

New product, want to provide information.
2. Competitive

Choices of similar products, it must differentiate its product by saying it is better, stronger, faster, and cheaper.

Chapter 8: Advertising Notes
“Advertising”
3. Reminder

Brief mention of product name, picture of product, catchy slogan.
4. Institutional

To promote the company name and image.

Does not promote the product.

Chapter 8: Advertising Notes
“Advertising”
* Three Strategies of Advertising
1. Slogan

Catchy jingle to help identify and remember products.
2. Rational Appeal

Use logic or reason to persuade people to buy the product.

Examples: health foods, pain relievers.

Chapter 8: Advertising Notes
“Advertising”
3. Emotional Appeal

Testimonial from a famous person.

Bandwagon
- Everyone is using the product.
- Popularity: how popular you would be if you use it.
http://www.youtube.com/watch?v=8iXdsvgpwc8

http://www.youtube.com/watch?v=O-
VqYLbQxJk

8.3



Profits are a good thing. As a sole proprietor, you keep all profits. In a partnership, you share profits with one or several partners. In a corporation, however, the profits are dispersed among thousands of shareholders.
In this lesson you will learn why entrepreneurs incorporate, or form corporations.

 Corporation: is an organization owned by many people, but treated by law as though it were a person.
- can own property.
- pay taxes
-make contracts
-sue and be sued

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Stock: represents ownership rights to a certain portion of the future profits and assets of the company.
Stockholders: Are those that own the corporations stock.
Advantage of a corporation:
- limited liability (only lose what you invest)
Disadvantage of a corporation:
- Corporations are taxed more heavily than other forms of business organizations.

 Every state has laws governing the formation of corporations, but most state laws are similar.
 If you decide to form a corporation, you will have to file an
articles of incorporation within the state you will run the corporation.
 If the state agrees, you will be granted a corporate charter, or a license to operate from that state.

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Common Stock- gives the investor part ownership in the corporation, a right to a percentage of future profits, and voting rights at annual stockholders meeting.
Preferred Stock- stockholders do not have voting rights in a corporation, but they are guaranteed a certain amount of dividends each year.
- Dividend- Money return on money invested
- if corporation goes bankrupt, owners of preferred stock are entitled to first claim on whatever value is left after debts are paid.

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To become incorporated a company must have a board of directors.
You and your partners, as founders, would select the first board. After that, stockholders would elect board members.
The board is responsible for supervising and controlling the corporation, but does not run the day-to-day operations.

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Franchise: Is a contract in which a firm, usually a corporation, sells the right for a person or group to use its name and sell its product.
In return, the person or group makes payments and meets certain requirement.
EX: Taco Bell, McDonald’s, Hilton Hotels

Advantages:
1. Management and training support.
2. Standardized quality
3. National (free) Advertising
4. Financial Assistance
Disadvantages:
1.
2.
3.
4.
High franchising fees
Strict Standards
Purchasing restrictions
Limited product line

 What are two ways in which the government protects and promotes competition in the market?

9.1

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In this chapter, you will learn that businesses are categorized by market structure.
Market Structure: amount of competition a business will face.
The first type of market structure is called perfect
competition, which is sometimes referred to as “pure competition”.

1.
2.
3.
4.
5.
large market: many buyers and sellers
similar products: sellers offer identical products.
information: buyers and sellers are well informed about products.
Low barriers to entry: sellers are able to enter and exit the market freely.
Independence: sellers and buyers working together to control price is almost nonexistant.


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Perfect markets are efficient due to competition.
Prices are usually low.
Production cost are also usually low.


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Perfect or pure markets usually deal in commodities.
Commodities: Products that are considered the same regardless of who makes them.
ex: staples, paper clips, milk and other type of agriculture


2.
Barriers to entry: Factors which make it difficult for new firms to enter a market.
2 most common barriers to entry:
1.
start-up cost: the expenses that a new business must pay before their product reaches the customer. (ex: auto industry)
Technology: Some market require a high degree of technological know-how. (plumbing, electrician)



What are the two most common barriers to entry?
What are commodities?

9.2


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The most extreme case of an imperfect market is a monopoly.
Monopoly: a market structure in which a single firm controls the supply of the good or service, as well as the price.
Problem of monopolies: they can take advantage of their market power and charge higher prices.

1. One firm
2. Complete barrier to entry
3. Usually only one type of product available
4. Complete control over prices

1.) Natural Monopoly: When it make sense, and is more efficient, to allow only one business to operate. (water,
Smart buses)
2.) Government monopoly: Monopoly that is created by the government itself. (ex: construction of roads, bridges)
3.) Geographic Monopoly: Monopoly caused by geographic factors. (ex: general store in a remote
Alaskan town.

4.) Technological Monopoly: If you invent something you are capable of having a technological monopoly over your invention.
(ex:) patent- gives a person the exclusive right to manufacture, rent, or sell their invention for a certain number of years. copyright- basically a patent on art or written works. Copyrights last for the life of the creator, plus 70 years.

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Oligopoly: A market structure dominated by a few large, profitable firms. (ex: breakfast cereal, air travel)
Economists usually call an industry an Oligopoly if the four largest firms produce at least 70-80% of the total output.
Car companies, airlines, and phone companies are all examples of an oligopoly.

1.
2.
3.
4.
5.
few sellers.
High barriers to entry.
Identical or slightly different products.
Non-price competition:
Interdependence

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Collusion: an agreement among firms of an oligopoly to set prices and production. (Usually used make greater profits)
Cartels: an agreement among firms to set prices and production in order to keep new firms from entering the industry.
Price Fixing- an agreement among firms to sell at the same or similar prices
* All are illegal in the United States.


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
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Large number of sellers offer similar, but slightly different products.
Each firm has some control over price.
Usually brand-name items such as; toothpaste, cosmetics, and designer clothes
Competitive advertisement is very important in monopolistic competition.
When successful, advertising allows some firms to sell their product at higher prices.

1. Numerous Sellers
2. Low barriers to entry
3. Differentiated products
4. Non-price competition
5. Some control over price

 List the 3 types of imperfect market structure.

9.3


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Antitrust Legislation: law to prevent new monopolies or trusts from forming, and to break up those that already exist.
Sherman Antitrust Legislation: basically outlawed monopolies.
Clayton Act: Another law to protect competition. Allowed the government to make the final decision on some business mergers.


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Besides antitrust legislation, the government uses regulatory agencies that oversee various industries.
Fed. Trade commission, which regulates warranties, fraud in advertising.
Food and Drug Administration, regulates purity and food safety
Securities and Exchange Commission, regulates the sale of bonds, stocks and other investments
Occupational Safety and Health Admin. (OSHA): regulates workplace environments


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Deregulation: Means the government no longer decides what role each company can play in the market and how much it can charge its customers.
Banks
Trucking industry
Airlines
Railroads

1.
2.
3.
4.
5.
List the 4 types of market structures we have discussed.
What is antitrust legislation?
What did the Clayton Act do?
Which type of market structure is characterized by many firms, that produce exactly the same type of good?
What is a start-up?