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Microeconomics

Microeconomics. Business Operations. Warm Up. What is microeconomics?. Microeconomics Human behavior/choice The individual/firm. Why Does it Matter?. We interact with businesses on a daily basis Some of us work for businesses

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Microeconomics

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  1. Microeconomics Business Operations

  2. Warm Up • What is microeconomics?

  3. Microeconomics • Human behavior/choice • The individual/firm

  4. Why Does it Matter? • We interact with businesses on a daily basis • Some of us work for businesses • List 3 firms/stores you have done business with in the last month

  5. Types of Businesses • 3 forms of business ownership (free markets) • Sole proprietorships • Partnerships • Corporations

  6. Sole Proprietorships • Owned by 1 person • Makes all decisions • Receives all the profits/losses • Legally responsible for the debt • Ex. Family farms, carpet cleaning service, etc. • Name a business that is owned by one person

  7. Advantages • Easy to form and dissolve • All decision making power resides with owner • Decisions are made quickly • The profits of the firm is only taxed once • Profit you earn is considered income • Income tax

  8. Disadvantages • Unlimited liability • Personal assets may be used to pay of firm debt • Car/house may have to be sold to pay off debt if you go out of business • Can’t borrow funds easily; banks do not want to loan money to success depends on 1 person • When owner dies, business does too!

  9. Partnership • Business that is owned by two or more co-owners • Share profits/debts • Examples: medical offices, law offices

  10. Advantages • Specialization • Each owner does what he/she is good at for the business • Only income tax applies to profits

  11. Disadvantages • General Partner • Share in debt of firm • Limited partner does not (doesn’t manage either) • Decision making can be complicated/frustrating

  12. Corporations • Legal entity that can • Conduct business in its own name and in the same way an individual does • Is owned by stockholders • Share of ownership • Examples: Disney, Google, Apple

  13. Advantages • Owners (stockholders) are not personally liable for the debt of the corporation • Limited liability • Can raise large sums of money by selling stock

  14. Disadvantages • Double Taxes • Corporate income tax on profits • Income on stockholders from dividends • Complicated to set up

  15. The Corporate Structure • Stockholders are the most important people • They elect the board of directors • Cast as many votes as you have shares of stock • Annual vote • Board of directors • Determine corporate policies and goals • What products to sell • What % of profits go to shareholders (dividends) • Appoints President, VP, Treasurer

  16. Financing Corporate Activity • Can borrow money from banks • Only corporations can • Sell bonds • Issue (sell) additional shares of stock • Bondholders must be paid back the debt

  17. The Franchise • Contract by a firm (usually a corporation) • Lets a person use its name and sell its products • Must make payments to them and agree to certain conditions • Examples: McDonald’s, Burger King, Wendy’s, Pizza Hut, Domino’s Pizza, Taco Bell

  18. How a Franchise Works • A franchisee (person) pays an initial fee • $45,000 for McDonald’s (excludes building/supplies) • Annual Payments to Franchiser • 12.5 % of annual profits • Meet requirements • Cook Big Mac for same length • In return, franchisee gets to use company name, sell products, financial assistance, assistance in training new employees, national advertising

  19. Advantages • National advertising • Successful business

  20. Disadvantages • Sometimes does not provide the financial and training support you expect • Occasionally does not meet the quality standards you expect

  21. Ethical/Social Responsibility • Do businesses have an ethical and social responsibility to the public?

  22. Yes – Ralph Nader • Provide customers with full information about their products • Treat employees well • Quality of life (flex time) • Donates funds to meet social needs in community

  23. No – Milton Friedman • Only 1 responsibility for businesses! • Use resources and activities designed to increase profits • Without deception/fraud • A business should not give away its profits and does not have any social responsibility to the community

  24. Where will they locate? • Similar firms have incentive to locate near each other (competition for customers) • Examples: • Gas stations • Car dealerships • restaurants

  25. Questions • The owners of which types of business organizations face unlimited liability? • Which type of business is the largest? • Do you think the initial fee for franchises is the same? Why or why not? • Do you agree or disagree with Milton Friedman’s position on ethical/social responsibility? Explain.

  26. Project • Open your own franchise • With 1 partner, choose a franchise • Answer questions • What do you need to qualify to open one? • Cost to open • Pros/Cons • Present your findings

  27. Stossel

  28. Quiz

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