I. Business Organizations

1

• I. Business Organizations
• A. Sole proprietorship- A
• business that is run by one
• person or family. Most businesses
• before the 20th century were sole
• proprietorships.
• Example Levi Strauss, Inc. Or In-N-Out
  Burger
• 1. Advantages
• a.) Complete Control
• b.) Almost no red tape
• c. ) All the profits
• 2. Disadvantages
• a.) Unlimited Liability- If you are
  an owner, your personal assets
• (home, car, etc.) could all go bye-
• bye if your business goes
• bankrupt or if someone sues.

2

• b. If you want to expand your business you would
  have to rely on yourself.
• c. Inventory- Goods and parts for production and
  sale
• are hard to supply if you own
• your own business.
• d. Inability to offer fringe
• benefits (health care, retirement, etc.)

3

• B. Partnerships- Businesses owned by two or more
  people.
• 1. Types
• a. Limited Partnerships- Usually an investor who
  does not participate in management of the
  company.
• Example Magic Johnson owns 5 of the Lakers,
  but does not participate in management.
• b. General Partnership- All
• partners are responsible for
• management.
• Example Common in doctors offices and law
  offices.

4

• 1. Advantages
• a. New ideas
• b. Tax benefits
• c. Easier to get a loan
• d. Larger size
• 2. Disadvantages
• a. If one partner is not pulling his/her
  weight the
• other partner could become
• frustrated
• b. Limited liability- Partners
• could be responsible for the debts of other
  partners.

5

• C. Corporation- A business that can buy and sell
  property. No one person owns a corporation.
• 1. The people that own a corporation are the
  Shareholders or Stockholders. Example
• Microsoft
• 2. Two types of stock
• Common Stock- Stock in which the owner has the
  right to vote.
• Preferred Stock- Nonvoting Stock

Microsoft
Mr. Bs share
6

• 3. Strengths
• a. A corporation can raise more money through a
  bond (loan) or by selling more stock. A
  corporation that has just begun is called an IPO
  (Initial Public Offering. For example, Krispy
  Kreme Donuts
• b. Limited Liability- Stockholders may lose some
  money, but cannot be sued or go bankrupt.
• c. Easy to sell
• Weaknesses
• a. Hard to start
• b. Little say in operations
• c. Must keep good records

7

• II. Demand
• -Definition-The desire of an individual to buy
  something.
• Law of Demand- The demand for a product declines
  or increases based on its price.
• Example If Honda Accords sold for 30,000 the
  demand would be low, if they sold for only
  13,000 the demand for them would be high.

8

• B. Changes in Demand
• 1. Income Effect- When people make less money
  they buy less. When they make more money they
  buy more. Example George W. Bush is trying to
  revive the economy with his tax cut.
• 2. Substitution Effect- The amount purchased is
  different due to various costs. Example Suppose
  McDonalds is selling Big Macs for a dollar each
  and the average consumer is buying 2 Big Macs.
  If the price is raised, people may still buy Big
  Macs but might only buy one instead of two.

9

• 3. Consumer Tastes- Depends on trends at the
  time of purchase. Example Sisqo may be hot
  now, but in a year few people may know who he is
  and not buy his CDs.
• 4. Substitutes- Products that can be replaced
  by another brand.
• Example People that drink Coke could easily
  replace it with Pepsi.
• 5. Compliments- Things (goods) that make you
  buy related goods.
• Example Buying a camera will probably make
  people buy film.

10

• C. Diminishing Marginal Utility- The more a
  person buys of one product, the less eager they
  are to buy more of it.
• Example If you buy one large pizza for
  yourself, chances are you will not go out and buy
  a second or third pizza because you will not be
  hungry. Would addictive drugs be a good example
  of this concept?
• D. Elasticity- A term used to describe how
  prices change supply and demand.

11

• III. Supply
• A. Law of Supply- The number or quantity
  supplied will effect its price. Example
  Diamonds are rare and worth a lot of money.
• B. Changes in Supply
• 1. Cost of Production Example If congress
  passes a minimum wage law that would increase the
  price of goods. Oil price increases could
  increase gas prices.
• 2. Technology
• Example As technology increases, the price of
  VCRs, computers, T.V.s become less expensive.

12

• 3. Number of Sellers
• Example If only one person/company is selling
  tickets to a Kings game, the price will
  increase.
• Government Involvement
• Example The government might choose to increase
  taxes which would raise costs or they could give
  a corporation a subsidy (loan) like Amtrack. The
  government may choose to have tight regulation
  that would effect the price of goods produced.