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Economics: Chapter 8 Keyterms

Sole Proprietorship
A business owned and managed by a single individual
Zoning Laws
Law in a city or town that designated separate areas for residency and for business
Liability
The legally bound obligation to pay debts
Fringe Benefits
Payment other than wages or salaries
Partnership
A business organization owned by two or more persons who agree on a specific division of responsibilities and profits
General Partnership
Partnership in which partners share equally on both responsibility and liability
Limited Partnership
Partnership in which only one partner is required to be a general partner
Limited Liability Partnership (LLP)
Partnership in which all partners are limited partners
Assets
Money and other valuables belonging to an individual or business
Corporation
A legal entity owned by individual stockholders
Stock
A certificate of ownership in a corporation
Bond
A formal contract to repay borrowed money with interest at fixed intervals
Dividend
The portion of corporate profits paid out to stockholders
Horizontal Merger
The combination of two or more firms competing in the same market with the same good or service
Vertical Merger
The combination of two or more firms involved in different stages of producing the same good or service
Conglomerate
Business combination merging more than three businesses that make unrelated products
17. Multinational Corporation (MNC)
Large corporation that produces and sells its goods and services throughout the world
Business Franchise
A semi-independent business that pays fees to a parent company in return for the exclusive right to sell a certain product or service in a given area
Royalty Payments
Share of earnings given as payment
Cooperative
A business organization owned and operated by a group of individuals for their mutual benefit
Consumer Cooperative
Retail outlet owned and operated by consumers
Service Cooperative
Cooperative that provides a service, rather than a good
Producer Cooperative
Agricultural marketing cooperative that helps members sell their products
Non-Profit Organization
Institution that functions much like a business, but doesn’t operate for the purpose of generating profits
What are the advantages of a sole proprietorship?
Advantages of a sole proprietorship is being able to keep all the firm’s profits.
What are the disadvantages of a sole proprietorship?
Disadvantages of a sole proprietorship is being responsible for the firm’s debts.
What types of partnerships exist?
-General Partnership: Partnership in which partners share equally in both responsibility and liability.
-Limited Partnerships: Partnership in which only one partner is required to be a general partner
-Limited Liability Partnership: All partners are limited partners
What are the advantages of partnerships?
-Ease of start-up
-Shared Decision Making and Specialization
-Larger Pool of Capital, and Taxation
What are the disadvantages of partnerships?
Unlimited Liability and Potential for Conflict
What are the characteristics of corporations?
-Types of corporations (closely help corporations and publicly held corporations) and Corporate Structure.
– Needs to have stocks that inverters buy
What are the advantages of incorporation?
– Advantages for stockholders
-Advantages for the corporation
What are the disadvantages of incorporation?
– Difficulty and Expensive Start-up
– Loss of control
– More regulation
What types of corporate combinations exist?
-Horizontal Mergers: join two or more firms competing in the same market with the same good or service.
-Vertical Mergers: Join two or more firms involved in different stages of producing the same good or service.
– Conglomerates: Have more than three businesses that make unrelated products.
What are multinational corporations and what role do they play in the economy?
Multinational Corporations are a large corporation that produces and sells its goods and services throughout the world. They play a big role in the economy because they have franchises all over the world and make a lot of profit off of that which helps the economy as a whole.
What is a business franchise and how does it work?
A business franchise is a semi-independent business that pays fees to a parent company. In return, the business is granted the exclusive right to sell a certain product or service in a given area.
What are the advantages and disadvantages of a franchise?
Advantages: Management Training and Support, Standardized Quality, National advertising Programs, Financial Assistance, and Centralized Buying Power.
Disadvantages: High Franchising Fees and Royalties, Strict Operating Standards, Purchasing Restrictions, and Limited Product Line.
What different types of cooperatives exist? Describe them.
-Consumer Cooperatives: Retail outlets owned and operated by consumers
– Service Cooperatives: Cooperatives that provide a service, rather than goods
– Producer Cooperatives: Agricultural marketing cooperatives that help members sell their products.

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