GEB1101:M1-C1.2.3.4: Environment of Business & Business Ownership

If a company’s sales are higher than its expenses, the company has earned what is known as revenue.
True or False
False
Material resources include sand, water, wood, dump trucks and computers.
True or False
True
The ____ for a particular product is the quantity that buyers are willing to purchase at each varying price.
a. competition
b. market price
c. supply
d. demand
e. equilibrium
d. Demand
Generally, the business cycle consists of four phases: the peak, recession, the trough, and recovery.
True or False
True
The health of a nation’s economy is actually quite unrelated to the amount of interest consumers pay for homes, automobiles, and credit card purchases.
True or False
False
In a socialist economy, the distribution of goods and services – who gets what – is controlled by the government however some smaller businesses may be privately owned. True or False
True
Approximately 70% of U.S. production consists of goods and services purchased by individuals for personal or household consumption
True or False
True
The “Invisible Hand” was a term coined by Adam Smith.
True or False
True
When a firm is lacking financing, inventory, or time, it is dealing with issues of scarcity.
True or False
True
A system of business where the key industries are owned and controlled by the government with private ownership of some business is known as capitalism.
True or False
False.
Approximately 45% of small businesses fail within the first seven years.
True or False
False
Service Economy
An economy in which more effort is devoted to the production of services than tot he production of goods.
Free Enterprise
Free Enterprise
Individuals are free to decide what to produce, how to produce it, and at what price to sell it
Productivity
The average level of output per worker per hour
Gross Domestic Product (GDP)
Gross Domestic Product (GDP)
The Total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period.
Perfect (or Pure) competition
Perfect (or Pure) competition
The market situation in which there are many buyers and sellers of a product and no single buyer or seller is powerful enough to affect the price of that product.
Economics
The study of how wealth (anything of value) is created and distributed
Deflation
Deflation
A general decrease in the level of prices
Consumer Products
Consumer Products
Goods and Services purchased by individuals for personal consumption.
Sustainability
Sustainability
Creating and maintaining the conditions under which humans and nature can exist in productive harmony while fulfilling the social, economic, and other requirements of present and future generations.
Unemployment Rate
The percentage of a nation’s labor force unemployed at any time.
Monetary Policies
Monetary Policies
Federal Reserve’s decisions that determine the size of the supply of money in the nation and the level of interest rate.
Microeconomics
Microeconomics
The study of the decisions made by individuals and businesses
Discuss what you must do to be successful in the world of business.
1. Have a dream—know what you want
2. Adapt to changes in the environment—work hard to turn your dreams into reality
Define business and identify potential risks and rewards.
Define economics and describe the two types of economic systems: capitalism and command economy.
Identify the ways to measure economic performance.
1. Productivity
2. Economic Indicators
Examine the different phases in the typical business cycle.
1. Recession
2. Depression
3. Monetary Policies
Outline the four types of competition.
Summarize the FACTORS that affect the business environment that American businesses will encounter in the future.
Summarize the CHALLENGES that American businesses will encounter in the future.
Sales Revenue
Expenses + Profit
Profit
What remains after all business expenses have been deducted from sales revenue.
Loss (negative profit)
Results when a firm’s expenses are greater than its revenues
Why study business?
1. For help in choosing a career
2. To be a successful employee
3. To improve your management skills
4. To start your own business
5. To become a better informed consumer and investor
Tips for Studying Business
① Prepare before you go to class.
② Read the chapter.
③ Underline or highlight important concepts.
④ Take notes.
⑤ Apply the concepts.
⑥ Practice critical thinking.
⑦ Prepare for exams.
Business
The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs
Types of Economic Systems
1. Economics
2. Microeconomics
3. Macroeconomics
4. Economy
Macroeconomics
The study of the national economy and the global economy.
Economy
The system through which a society creates and distributes wealth.
Factors of Production
resources used to produce goods and services
1. Land and natural resources
2. Labor
3. Capital
4. Entrepreneurship
Entreprenuer
A person who risks time, effort, and money to start and operate a business
Differences of Economic Systems
How they answer the four basic economic questions
-What goods and services will be produced?
-How will they be produced?
-For whom will they be produced?
-Who owns and controls the major factors of production?
Capitalism
Capitalism
An economic system in which individuals own and operate the majority of businesses that provide goods and services

Derived from Adam Smith’s laissez-faire capitalism

Adam Smith’s laissez-faire capitalism
a society’s best interests are served by individuals pursuing their own self-interest
a) Creation of wealth is the concern of private individuals
b) Resources used to create wealth must be privately owned
c) Economic freedom ensures the existence of a free market economy. Businesses and individuals decide what to produce and buy; the market determines quantities sold and prices
d) Limited role of government
Capitalism in the U.S.
1. Mixed economy with elements of capitalism and socialism
2. Households
— Consumers of goods and services
— Resource owners of some factors of production
3. Businesses
— Produce goods and services to exchange for revenues (money)
— Use revenues to purchase factors of production
4. Governments
— In exchange for taxes, governments provide public services that would not be provided by business or would be produced only for those who could afford them
Command Economies
1. Economic systems in which the government decides what will be produced, how it will be produced, who gets what is produced, and who owns and controls the major factors of production

2. Socialism
–Key industries (e.g., transportation, utilities, and banking) are owned and controlled by the government
–Small-scale private businesses may be permitted and workers may choose their own occupations
–Production is based on national goals, and distribution is controlled by the state
–Intent is the equitable distribution of income, elimination of poverty, social services to all who need them, elimination of the economic waste of capitalistic competition

3. Communism
–All factors of production are owned and controlled by the government as proxy for ownership by all citizens
–Production is based on centralized state planning to meet the needs of the state and not necessarily the needs of its citizens
–The state dictates occupational choices and sets prices and wages
–Intent is to create Karl Marx’s concept of a classless society where all contribute according to their ability and receive benefits according to their needs.

Economic Indicators (EI)
1. Gross Domestic Product (GDP)
2. Inflation
3. Deflation
4. Unemployment Rate
5.Consumer Price Index (CPI)
6. Producer Price Index (PPI)
Productivity
The average level of output per worker per hour
Gross Domestic Product (GDP)
The total value of all goods and services produced by all people within the boundaries of a country during a one-year period. (EI)
Inflation
A general rise in the level of prices (EI)
Deflation
A general decrease in the level of prices (EI)
Unemployment Rate
Percentage of a nation’s labor force unemployed at any time (EI)
Consumer Price Index (CPI)
A monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area
Producer Price Index (PPI)
An index that measures prices that producers receive for their finished goods
Common Measures Used to Evaluate a Nation’s Economic Health
1. Balance of Trade
2. Bank Credit
3. Corporate Profits
4. Inflation Rate
5. National Income
6. New Housing Starts
7. Prime Interest Rates
Balance of Trade
The total value of a nation’s exports minus the total value of its imports over a specific period of time
Bank Credit
A statistic that measures the lending activity of commercial financial institutions
Corporate Profits
The total amount of profits made by corporations over selected time periods
Inflation Rate
An economic statistic that tracks the increase in prices of goods and services over a period of time; usually calculated on a monthly or annual basis
National Income
The total income earned by various segments of the population, including employees, self-employed individuals, corporations, and other types of income
New Housing Starts
The total number of new homes started during a specific time period
Prime Interest Rate
The lowest interest rate that banks charge their most creditworthy customers
Business Cycle
The recurrence of periods of growth and recession in a nation’s economic activity.
Recession
Two or more consecutive three-month periods of decline in a country’s gross domestic product
Depression
A severe recession that lasts longer than a recession
Monetary Policies
Federal Reserve decisions that determine the size of the supply of money in the nation and the level of interest rates
Fiscal Policy
Government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending
Federal deficit
A shortfall created when the federal government spends more in a fiscal year than it receives
National debt
The total of all federal deficits
Types of Competition
1. Perfect (or pure) competition
2. Monopolistic competition
3. Oligopoly
4. Monopoly
Competition
Rivalry among businesses for sales to potential customers.
Perfect (or pure) competition
The market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product
a) Supply
b) Demand
c) Market Price (Equilibrium)
Supply
Supply
The quantity of a product that PRODUCERS are willing to SELL at each of various prices
Demand
Demand
The quantity of a product that BUYERS are willing to PURCHASE at each of various prices
Market Price (Equilibrium)
Market Price (Equilibrium)
The price at which the quantity demanded is exactly equal to the quantity supplied
Monopolistic competition
A market situation where there are many buyers along with a relatively larger number of sellers who differentiate their products from the products of competitors
Product Differentiation
The process of developing and promoting differences between one’s products and all similar products
Oligopoly
1. A market situation (or industry) in which there are few sellers (Ex. automobile manufacturers, car rental agencies, and farm implement industries)
a) Sizable investments are required to enter into the market
b). Each seller has considerable control over price
c). The market actions of one seller can have a strong effect on competitors
Monopoly
a market (or industry) with only one seller, and there are barriers to keep other firms from entering the industry
Natural monopoly
An industry requiring huge investments in capital and within which duplication of facilities would be wasteful and thus not in the public interest
Legal monopoly (limited monopoly)
A monopoly created when a government entity issues a franchise, license, copyright, patent, or trademark protecting the owners of written materials, ideas, or product brands from unauthorized use by competitors
Standard of living
A loose, subjective measure of how well off an individual or a society is mainly in terms of want satisfaction through goods and services
Early business development
1. Barter System
2. Domestic System
3. Factory System
4. Specialization
Barter system
A system of exchange in which goods or services are traded directly for other goods and/or services without using money
Domestic system
A method of manufacturing in which an entrepreneur distributes raw materials to various homes, where families process them into finished goods to be offered for sale by the merchant entrepreneur
Factory system
A system of manufacturing in which all the materials, machinery, and workers required to manufacture a product are assembled in one place
Specialization
The separation of a manufacturing process into distinct tasks and the assignment of the different tasks to different individuals
Business Development in the 1900s
1. Rapid growth of large industries (automobiles, steel, oil, chemical) and the mass production of consumer goods
2. The Roaring Twenties ended with the 1929 stock market crash
3. Government intervention became necessary to get the economy moving again
4. In the last part of the 1900s, a large number of business failures and declining stock values suggested larger economic problems to come
Major events that shaped the nation’s economy between 1940 and 2000 include:
1. WWII, the Korean War, and the Viet Nam War
2. Rapid economic growth and higher standard of living during the 1950s and 1960s
3. The social responsibility movement during the 1960s
4. A shortage of crude oil and higher prices for most goods in the mid-1970s
5. High inflation, high interest rates, and reduced business profits during the early 1980s
6. Sustained economic growth in the 1990s
E-Business
the organized effort of individuals to produce and sell through the Internet, for a profit, products and services that satisfy society’s needs–became an accepted method of conducting business
A New Century: 2000 and Beyond
1. Technology becomes affordable
2. Growth of service businesses (Service Economy)
3. Although many economic indicators are strong, there is a feeling of pessimism, a large number of business failures, high unemployment, and terrorist threats
Current Business Environment
The competitive, global, technological, and economic environments affect business today
cultural (or workplace) diversity
differences among people in a workforce owing to race, ethnicity, and gender
invisible hand
a term created by Adam Smith to describe how an individual’s personal gain benefits others and a nation’s economy
Market Economy
an economic system in which businesses and individuals decide what to produce and buy, and the market determines quantities sold and prices
Mixed Economy
an economy that exhibits elements of both capitalism and socialism
social media
the online interaction that allows people and businesses to communicate and share ideas, personal information, and information about products or services
stakeholders
all the different people or groups of people who are affected by an organization’s policies, decisions, and activities
sustainability
creating and maintaining the conditions under which humans and nature can exist in productive harmony while fulfilling the social, economic, and other requirements of present and future generations
The ability to deal effectively with individual employees as well as other managers and people outside the organization are known as conceptual skills
False
The only current example of a command economy is capitalism
False
Since we assume producers are rational people, we would expect them to offer more of a product at a higher price than to offer the product at a lower price.
True
Bushels of corn, wheat, or barley that have no unique characteristics are part of a perfect competition market.
True
When an economy is at its highest point and unemployment is low, the economy is in a peak period.
True
Studies show that the incidence of innovation among small-business workers is ________ than among workers in large businesses.
Significantly Higher
Airplanes manufactured by Boeing, cars manufactured by Nissan, and Kellogg’s cereal are all examples of
oligopolies
People do not simply buy goods and services to just own them; they buy goods and services to satisfy a specific need.
True
Information is the resource that managers use to effectively combine human, financial, and material resources.
True
Manufacturers in the auto industry operate in a monopoly setting.
False
Microeconomics is the study of the economy of an entire nation as well as the global economy
False
Best Buy, an electronics retailer, could be considered a marketing intermediary.
True
Understand what is meant by business ethics.
Ethics is the study of right and wrong and of the morality of choices. Business ethics is the application of moral standards to business situation
Identify the types of ethical concerns that arise in the business world.
Ethical issues arise often in business situations out of relationships with investors, customers, employees, creditors, or competitors. Businesspeople should make every effort to be fair, to consider the welfare of customers and others within the firm, to avoid conflicts of interest, and to communicate honestly.

1. Fairness & Honesty
2. Organizational Relationships
3. Conflict of Interests
4. Communications

Discuss the factors that affect the level of ethical behavior in organizations.
Individual, social, and opportunity factors all affect the level of ethical behavior in an organization.
1-Individual factors include knowledge level, moral values and attitudes, and personal goals.
2-Social factors include cultural norms and the actions and values of co-workers and significant others.
3-Opportunity factors refer to the amount of leeway that exists in an organization for employees to behave unethically if they choose to do so.
Explain how ethical decision making can be encouraged.
Governments, trade associations, and individual firms can establish guidelines for defining ethical behavior.
1- Governments can pass stricter regulations.
2- Trade associations provide ethical guidelines for their members.
3-Companies provide codes of ethics—written guides to acceptable and ethical behavior as defined by an organization—and create an atmosphere in which ethical behavior is encouraged. 4-An ethical employee working in an unethical environment may resort to whistle-blowing to bring a questionable practice to light.
Describe how our current views on the social responsibility of business have evolved
In a socially responsible business, management realizes that its activities have an impact on society and considers that impact in the decision-making process.

Before the 1930s, workers, consumers, and government had very little influence on business activities; as a result, business leaders gave little thought to social responsibility.
All this changed with the Great Depression.

Government regulations, employee demands, and consumer awareness combined to create a demand that businesses act in socially responsible ways.

Guidelines for Making Ethical Decisions
1. Listen and learn
2. Identify the ethical issues.
3. Create and analyze options
4. Identify the best option from your point of view.
5. Explain your decision and resolve any differences that arise.
Two Views of Social Responsibility
1-The basic premise of the economic model of social responsibility is that society benefits most when business is left alone to produce profitable goods and services.

2-According to the socioeconomic model, business has as much responsibility to society as it has to its owners. Most managers adopt a viewpoint somewhere between these two extremes.

Discuss the factors that led to the consumer movement and list some of its results.
1. Environmental Protection
2. Product Performance
3. Safety
Six Basic Rights to Consumers
1. Right to Safety
2. Right to be Informed
3. Right to Choose
4. Right to Be Heard
5. Right to Consumer Education
6. Right to Courteous Service
Analyze how present employment practices are being used to counteract past abuses.
Legislation and public demand have prompted some businesses to correct past abuses in employment practices—mainly with regard to minority groups.

Affirmative action and training of the hard-core unemployed are two types of programs that have been used successfully.

Describe the major types of pollution, their causes, and their cures.
Water, Air, Land and Noise

Industry has contributed to noise pollution and pollution of our land and water through the dumping of wastes, and to air pollution through vehicle and smokestack emissions.

This contamination can be cleaned up and controlled, but the big question is: Who will pay? Present cleanup efforts are funded partly by government tax revenues, partly by business, and in the long run by consumers.

Business ethics is the application of legal and regulatory standards to business situations.
True
False
False
Identify the steps a business must take to implement a program of social responsibility.
1-A program to implement social responsibility in a business begins with total commitment by top management.
2-The program should be planned carefully, and a capable director should be appointed to implement it.
3-Social audits should be prepared periodically as a means of evaluating and revising the program.
4-Programs may be funded through price increases, reduction of profit, or federal incentives.

1. Commitment of Top Executives
2. Planning
3. Appointment of a Director
4. The Social Audit

Cultural norms can play a part in a person’s ethical or unethical behavior in the workplace.
True
False
True
Regulations and laws were much stricter in the first quarter of the twentieth century than they are now.
True
False
False
The Interstate Commerce Act was the first federal act to regulate business practices.
True
False
True
A Latin phrase, caveat emptor, summarizes the vulnerable position that consumers were in the early 1900s
True
The EPA is a federal agency charged with enforcing laws intended to protect the environment
True
The EEOC has the power to investigate complaints of employment discrimination and can sue firms that practice discrimination.
True
Misleading advertising in print or television is illegal as well as unethical.
True
Which of the following government agencies issues guidelines on the use of labeling that advertisers have an obligation to follow?
A. Fair Packaging and Labeling Act
B. Clayton Antitrust Act
C. Sherman Antitrust Act
D. Federal Trade Commission
E. Pure Food and Drug Act
Federal Trade Commission
The _____________ investigates illegal trade practices
Federal Trade Commission
For more than fifty years, women’s salaries have consistently been only about ___ for each dollar earned compared to men’s.
A. 84
B. 82
C. 91
D. 77
E. 62
D. 77
The Clean Air Amendments, the Water Pollution Control Act Amendment, and the National Environmental Policy Act were all instituted in the
A. 1990s
B. 1980s
C. 1960s
D. 1970s
1970s
All of the following are arguments for increased social responsibility except:
A. socially responsible decision making by firms can prevent increased government intervention, which would force businesses to do what they fail to do voluntarily.
B. by helping resolve social issues, business can create a more stable environment for long-term profitability
C. social problems affect society in general, so individuals businesses should not be expected to solve these problems.
D. business is a part of our society and therefore cannot ignore social issues.
E. business has the technical, financial, and managerial resources needed to tackle today’s complex social issues.
C. social problems affect society in general, so individuals businesses should not be expected to solve these problems.
All of the following are rights of the consumer bill of rights except
A. The right to choose
B. The right to be informed
C. the right to personalized service
D. the right to courteous service
C. the right to personalized service
affirmative action program
a plan designed to increase the number of minority employees at all levels within an organization
business ethics
the application of moral standards to business situations
Caveat Emptor
a Latin phrase meaning “let the buyer beware”. In other words, “what you see, is what you get.”
code of ethics
a guide to acceptable and ethical behavior as defined by the organization
consumerism
all activities undertaken to protect the rights of consumers
economic model of social responsibility
the view that society will benefit most when business is left alone to produce and market profitable products that society needs.

Managers who adopts this attitude, social responsibility is someone else’s job. Social Responsibility becomes the problem of the government, various environmental groups, charitable foundations, and similar organizations.

Equal Employment Opportunity Commission (EEOC)
a government agency with the power to investigate complaints of employment discrimination and the power to sue firms that practice it
Ethics
the study of right and wrong and of the morality of the choices individuals make
hard-core unemployed
workers with little education or vocational training and a long history of unemployment
minority
a racial, religious, political, national, or other group regarded as different from the larger group of which it is a part and that is often singled out for unfavorable treatment
pollution
the contamination of water, air, or land through the actions of people in an industrialized society
Sarbanes-Oxley Act of 2002
provides sweeping new legal protection for employees who report corporate misconduct. The law deals with corporate responsibility, conflicts of interest, and corporate accountability.
Social Audit
a comprehensive report of what an organization has done and is doing with regard to social issues that affect it
Social Responsibility
Social Responsibility
the recognition that business activities have an impact on society and the consideration of that impact in business decision making
Socioeconomic model of social responsibility
the concept that business should emphasize not only profits but also the impact of its decisions on society

1. Business is dominated by the corporate form of ownership and the corporation is a creation of society. If a corp doesn’t perform as a good citizen, society can and will demand changes.

2. Many firms have begun to take pride in their social responsibility records, among them Starbucks Coffee, HP, Colgate/Palmolive, Coca Cola.

3. Many business people believe that it is in their best interest to take the initiatives in this area. The alternative may be legal action brought against the firm by some special interest group; in such a situation the firm may lose control of its activities.

whistle-blowing
informing the press or government officials about unethical practices within one’s organization
Factors Affecting Ethical Behavior
Individual
Social
Opportunity
What is Social Responsibility good for business?
Customers eventually find put which firms act responsibly and which do not.
Interstate Commerce Act (1887)
First federal act to regulate business practices; provided regulation of railroads and shipping rates
Sherman Anti-trust Act (1890)
Prevented monopolies or mergers where competition was endangered
Pure Food and Drug Act (1906)
Established limited supervision of interstate sales of food and drugs
Meat Inspection Act (1906)
Provided for limited supervision of interstate sales of meat and meat products
Federal Trade Commission Act (1914)
Created the Federal Trade Commission to investigate illegal trade practices
Clayton Anti-Trust Act (1914)
Eliminated many forms of price discrimination that gave large businesses a competitive advantage over smaller firms
Arguments for increased social responsibility
1-Because business is a part of our society, it cannot ignore social issues.
2-Business has the technical, financial, and managerial resources needed to tackle today’s complex social issues.
3-By helping resolve social issues, business can create a more stable environment for long-term profitability.
4-Socially responsible decision making by firms can prevent increased government intervention, which would force businesses to do what they fail to do voluntarily.
Arguments against social responsibility
1-Business managers are responsible primarily to stockholders, so management must be concerned with providing a return on owners’ investments.
2-Corporate time, money, and talent should be used to maximize profits, not to solve society’s problems.
3-Social problems affect society in general, so individual businesses should not be expected to solve these problems.
4-Social issues are the responsibility of government officials who are elected for that purpose and who are accountable to the voters for their decisions.
Federal Hazardous Substances Labeling Act (1960)
Required warning labels on household chemicals if they were highly toxic
Kefauver-Harris Drug Amendments (1962)
Established testing practices for drugs and required manufacturers to label drugs with generic names in addition to trade names
Cigarette Labeling Act (1965)
Required manufacturers to place standard warning labels on all cigarette packages and advertising
Motor Vehicle Safety Act (1966)
Established standards for safer cars
Fair Packaging and Labeling Act (1966)
Called for all products sold across state lines to be labeled with net weight, ingredients, and manufacturer’s name and address
Truth in Lending Act (1968)
Required lenders and credit merchants to disclose the full cost of finance charges in both dollars and annual percentage rates
Fair Credit Reporting Act (1971)
Required credit bureaus to provide credit reports to consumers regarding their own credit files; also provided for correction of incorrect information
Credit Card Liability Act (1970)
Limited credit-card holder’s liability to per card and stopped credit-card companies from issuing unsolicited cards
Consumer Product Safety Commission Act (1972)
Established an abbreviated procedure for registering certain generic drugs
Fair Credit Billing Act (1974)
Amended the Truth in Lending Act to enable consumers to challenge billing errors
Equal Credit Opportunity Act (1974)
Provided equal credit opportunities for males and females and for married and single individuals
Amendments to the Equal Credit Opportunity Act (1976, 1994)
Prevented discrimination based on race, creed, color, religion, age, and income when granting credit
Magnuson-Moss Warranty-Federal Trade Commission Act (1975)
Provided for minimum disclosure standards for written consumer-product warranties for products that cost more than $15
Fair Debt Collection Practices Act (1977)
Outlawed abusive collection practices by third parties
Nutrition Labeling and Education Act (1990)
Required the Food and Drug Administration to review current food labeling and packaging focusing on nutrition label content, label format, ingredient labeling, food descriptors and standards, and health messages
Telephone Consumer Protection Act (1991)
Prohibited the use of automated dialing and prerecorded-voice calling equipment to make calls or deliver messages
Consumer Credit Reporting Reform Act (1997)
Placed more responsibility for accurate credit data on credit issuers; required creditors to verify that disputed data are accurate and to notify a consumer before reinstating the data
Children’s Online Privacy Protection Act (2000)
Placed parents in control over what information is collected online from their children younger than 13 years; required commercial website operators to maintain the confidentiality, security, and integrity of personal information collected from children
Do Not Call Implementation Act (2003)
Directed the FCC and the FTC to coordinate so that their rules are consistent regarding telemarketing call practices including the Do Not Call Registry and other lists, as well as call abandonment
Credit Card Accountability, Responsibility, and Disclosure Act (2009)
Provided the most sweeping changes in credit card protections since the Truth in Lending Act of 1968
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Promoted the financial stability of the United States by improving accountability and responsibility in the financial system; established a new Consumer Financial Protection Agency to regulate home mortgages, car loans, and credit cards; became Public Law on July 21, 2010
Major Environmental Laws
National Environmental Policy Act (1970)
Clean Air Amendment (1970)
Water Quality Improvement Act (1970)
Resource Recovery Act (1970)
Water Pollution Control Act Amendment (1972)
Noise Control Act (1972)
Clean Air Act Amendment (1977)
Resource Conservation and Recovery Act (1984)
Clean Air Act Amendment (1987)
Oil Pollution Act (1990)
Clean Air Act Amendments (1990)
Food Quality Protection Act (1996)
American Recovery and Reinvestment Act (2009)
Which of the following acts involving protecting the environment in some way is the most recent?
A – Oil Pollution Act
B – American Recovery & Reinvestment Act
C – Food Quality Protection Act
D – Resource Conservation & Recovery Act
E – Clean Air Amendment
B – American Recovery & Reinvestment Act
Relationships with customers are not known to cause ethical problems for businesses.
True
False
False
The courts of the U.S. have ruled that quotas in affirmative action programs are unconstitutional.
True
False
True
Of the following factors, which is the least important in contributing to air pollution?
A – Pollution emitted by individual homes
B – Carbon Monoxide emitted by motor vehicles.
C – Hydrocarbons emitted by motor vehicles
D – The combination of weather and geography
E – Smoke and other pollutants emitted by factories.
Which of the following is not considered a step in developing and implementing a social responsibility program in a company?
A – Planning the Program
B – Preparing a social audit
C – Incorporating “buy-in” from all employees
D – Appointing a director
E – Securing the commitment of top executives
Incorporating “buy-in” from all employees
A responsibility audit is a comprehensive report of what an organization is going to do in regard to social issues.
False
The Wall Street Reform and Consumer Protection Act was passed in 2009.
False
The ________ Act provides sweeping legislation for reporters of corporate misconduct.
A- Consumer Product Safety Commission
B- Federal Trade Commission
C- Accountability and Transparency in Rating Agencies
D- Sarbanes-Oxley
E- American Recovery and Reinvestment
D- Sarbanes-Oxley
Trade associations often do provide ethical guidelines for their members.
True
That the consumer was entitled to a “bill of rights” was instituted by President
A- Nixon
B- Clinton
C- George W. Bush
D- Kennedy
E- Ford
D- Kennedy
In a recent survey, the majority of employees surveyed assumed that their use of technology in the workplace is not monitored.
False
Which of the following is false about business and social responsibility in the first quarter of the twentieth century?
A- No minimum wage laws existed
B- Industrial accents were commonplace and nearly expected
C- The average work week was approx 40 hours
D- Working conditions where were considered deplorable by today’s standards.
E- Work areas were often crowded and unsafe.
C- The average work week was approx 40 hours
The ________ enlarged the solid-waste disposal program and provided for enforcement by the EPA.
Resource Recovery Act
Which of the following federal laws was not passed between 1887 and 1914 as were the others?
Fair Packaging and Labeling Act
Noise pollution might be addressed by workers being required to wear earplugs to guard against hearing damage.
True
Fairness is considered an important ethical concern in business.
True
Which of the following is the least likely option for funding a social responsibility program in a business?
A- The federal government helps through tax reductions or other incentives.
B- The costs are passed on to the consumer (no)
C- The company absorbs the costs.
D- Investors fund the program
E- Costs are treated as a business expense.
Nobel laureate Milton Friedman refers to social responsibility programs as “hypocritical window-dressing”. His belief supports which social responsibility philosophy?
The economic model
Sandra, a purchasing agent for Friday Farms, has just secured a new vendor for tractors, plows, and harrows. The new vendor offers Sandra some small, extra pieces of equipment—rakes, shovels, and hand trowels—knowing that the hand tools are always useful as well. The new vendor also is anxious to secure future bids. Sandra needs a few hand tools for her own garden and decides that doing business with this new vendor is in everyone’s best interest. From an ethical standpoint, Sandra needs to be very aware of
Conflict of Interest
When Maytag provides customers with a booklet describing how to use a washing machine, the company is satisfying the consumer bill of rights to
be informed
Which of the following examples is least likely to be covered by federal legislation passed in the 1960s?
a. Collection agencies with harsh and abusive collection practices
b. Boxes of cereal with net weight and manufacturer contact information
c. Bathroom cleaners with warning labels
d. A list of ingredients for your favorite ice cream
e. Cigarette magazine advertising that offers health warnings
Collection agencies with harsh and abusive collection practices
The traditional concept that businesses are responsible to their investors and that social responsibility is someone else’s job is the core of the
a. corporate code of ethics.
b. economic model of social responsibility.
c. socioeconomic model of social responsibility.
d. corporate model of social responsibility.
e. doctrine of caveat emptor.
economic model of social responsibility.
By ensuring that products are safe and reliable, the Food and Drug Administration and the Consumer Product Safety Commission are taking part in a movement known as
a. protectionism.
b. product activism.
c. socialism.
d. product liability management.
e. consumerism.
consumerism
A local bank just completed its social audit for the past year. Which statement indicates a valid attempt at responding to social responsibility by the bank?
a. One white female was promoted to CEO.
b. A reward system encourages all employees to market the bank’s products and services.
c. Each employee completed at least 200 hours of service to community functions.
d. This year marked an increase of 100 percent in the number of depositors.
e. The loan department expanded services to small businesses.
Each employee completed at least 200 hours of service to community functions.
Explain the economic basis for international business.
International business encompasses all business activities that involve exchanges across national boundaries. International trade is based on specialization, whereby each country produces the goods and services that it can produce more efficiently than any other goods and services. A nation is said to have a comparative advantage relative to these goods. International trade develops when each nation trades its surplus products for those in short supply.

A nation’s balance of trade is the difference between the value of its exports and the value of its imports. Its balance of payments is the difference between the flow of money into and out of the nation. Generally, a negative balance of trade is considered unfavorable.

Discuss the restrictions nations place on international trade, the objectives of these restrictions, and their results.
Despite the benefits of world trade, nations tend to use tariffs and non-tariff barriers (import quotas, embargoes, and other restrictions) to limit trade. These restrictions typically are justified as being needed to protect a nation’s economy, industries, citizens, or security. They can result in the loss of jobs, higher prices, fewer choices in the marketplace, and the misallocation of resources.
Outline the extent of international business and the world economic outlook for trade.
World trade is generally increasing. Trade between the United States and other nations is increasing in dollar value but decreasing in terms of our share of the world market. Exports as a percentage of U.S. GDP have increased steadily since 1985, except in the 2001 and 2008 recessions.
Discuss international trade agreements and international economic organizations working to foster trade.
The General Agreement on Tariffs and Trade (GATT) was formed to dismantle trade barriers and provide an environment in which international business can grow. Today, the World Trade Organization (WTO) and various economic communities carry on this mission. These world economic communities include the European Union, the NAFTA, the CAFTA, the Association of Southeast Asian Nations, the Pacific Rim, the Commonwealth of Independent States, the Caribbean Basin Initiative, the Common Market of the Southern Cone, the Organization of Petroleum Exporting Countries, and the Organization for Economic Cooperation and Development.
Define the methods by which a firm can organize for and enter into international markets.
A firm can enter international markets in several ways. It may license a foreign firm to produce and market its products. It may export its products and sell them through foreign intermediaries or its own sales organization abroad, or it may sell its exports outright to an export-import merchant. It may enter into a joint venture with a foreign firm. It may establish its own foreign subsidiaries, or it may develop into a multinational enterprise.

Generally, each of these methods represents an increasingly deeper level of involvement in international business, with licensing being the simplest and the development of a multinational corporation the most involved.

Describe the various sources of export assistance.
Many government and international agencies provide export assistance to U.S. and foreign firms. Sources of export assistance include U.S. Export Assistance Centers, the International Trade Administration, U.S. and Foreign Commercial Services, Export Legal Assistance Network, Advocacy Center, National Trade Data Bank, and other government and international agencies.
Identify the institutions that help firms and nations finance international business.
The financing of international trade is more complex than that of domestic trade. Institutions such as the Ex-Im Bank and the International Monetary Fund have been established to provide financing and ultimately to increase world trade for American and international firms
Saudi Arabia and Siberia enjoy an absolute advantage in the production of crude oil and petroleum products.
True
False
True
Protecting new or weak national industries is a reason to institute trade restrictions.
True
False
True
Exporting is selling and shipping raw materials or products to other states.
True
False
False
The balance of trade includes imports, exports, investments, money spent by foreign tourists, and aid to foreign governments.
True
False
False
A reason against trade restrictions is the higher prices that consumers have to pay.
True
False
True
The NAFTA agreement includes the United States, Canada, and Mexico.
True
Exporting is considered simpler than licensing.
a. True
b. False
False
All banks are required to be national banks; it is against international regulations for banks to cross country borders.
a. True
b. False
False
MDB stands for Monetarily-Developed Bank.
False
Which of the following is true about absolute advantages?
a. No country has an absolute advantage.
b. Absolute advantage is the ability to produce more of one product than any other country.
c. Every country has an absolute advantage in some product.
d. Absolute advantage is the ability to produce a particular product more efficiently than any other country.
Absolute advantage is the ability to produce a particular product more efficiently than any other country.
If the tiny country of Antigua & Barbuda imported $900 million worth of goods and services and exported $800 million worth, it would have a
a. trade deficit of $100 million.
b. balance of trade.
c. trade surplus of $100 million.
d. balance of payments of $100 million.
e. favorable balance of trade
trade deficit of $100 million.
If only 100,000 tons of beef is allowed to enter the U.S. borders, the U.S. government has instituted a(n)
a. trade embargo.
b. import quota.
c. devaluation.
d. balance of trade.
e. foreign-exchange control.
import quota.
absolute advantage
the ability to produce a specific product more efficiently than any other nation
balance of payments
the total flow of money into a country minus the total flow of money out of that country over some period of time.
balance of trade
the total value of a nation’s exports minus the total value of its imports over some period of time
bill of lading
document issued by a transport carrier to an exporter to prove that merchandise has been shipped
comparative advantage
the ability to produce a specific product more efficiently than any other product
countertrade
an international barter transaction
currency devaluation
the reduction of the value of a nation’s currency relative to the currencies of other countries
draft
issued by the exporter’s bank, ordering the importer’s bank to pay for the merchandise, thus guaranteeing payment once accepted by the importer’s bank
dumping
exportation of large quantities of a product at a price lower than that of the same product in the home market.
economic community
an organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies.
Export-Import Bank of the United States
an independent agency of the U.S. government whose function is to assist in financing the exports of American firms
exporting
selling and shipping raw materials or products to other nations
foreign-exchange control
a restriction on the amount of a particular foreign currency that can be purchased or sold
General Agreement on Tariffs and Trade (GATT)
an international organization of 158 nations dedicated to reducing or eliminating tariffs and other barriers to world trade
import quota
a limit on the amount of a particular good that may be imported into a country during a given period of time
importing
purchasing raw materials or products in other nations and bringing them into one’s own country
International business
all business activities that involve exchanges across national boundaries
International Monetary Fund (IMF)
an international bank with 188 member nations that makes short-term loans to developing countries experiencing balance-of-payment deficits
letter of credit
issued by a bank on request of an importer stating that the bank will pay an amount of money to a stated beneficiary
licensing
a contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation
multilateral development bank (MDB)
an internationally supported bank that provides loans to developing countries to help them grow
multinational enterprise
a firm that operates on a worldwide scale without ties to any specific nation or region
nontariff barrier
a non-tax measure imposed by a government to favor domestic over foreign suppliers

Other Non-Tariff Barriers:
*import quota
*embargo
*foreign exchange control
*currency devaluation
*bureaucratic red tape
*cultural attitudes

strategic alliance
a partnership formed to create competitive advantage on a worldwide basis
trade deficit
a negative balance of trade
trading company
provides a link between buyers and sellers in different countries
World Trade Organization (WTO)
powerful successor to GATT that incorporates trade in goods, services, and ideas
The Basis for International Business
+Some countries are better equipped than others to produce particular goods or services
–Absolute advantage
–Comparative advantage

+Goods and services are produced more efficiently when each country specializes in the products for which it has a comparative advantage

+Countries trade when they each have a surplus of the product they specialize in and want a product the other country specializes in
–Exporting
–Importing

+Balance of Trade
+Trade Deficit
+Balance of Payments

Restrictions to International Business
The reasons for restricting trade range from internal political and economic pressures to mistrust of other nations.

Nations are generally eager to export their products to provide markets for their industries and develop a favorable balance of trade.

Most trade restrictions are applied to imports from other nations.

Types of Trade Restrictions
Import Duty (Tariff)
Dumping
Non-Tariff Barriers
Import Duty (Tariff)
A tax levied on a particular foreign product entering a country

Revenue tariffs are imposed to generate income for the government

Protective tariffsare imposed to protect a domestic industry from competition by keeping the prices of imports at or above the price of domestic products

The Extent of International Business
Although the worldwide recessions of 1991 and 2001-2002 slowed the rate of growth, and 2008-2009 global economic crisis caused the sharpest decline in more than 70 years, globalization is a reality of our time

In the U.S., international trade accounts for over ¼ of GDP

Trade barriers are decreasing, new competitors are entering the global marketplace, creating more choices for consumers and new job opportunities

International business will grow with the expansion of commercial use of the Internet

The World Economic Outlook for Trade
Economic performance among nations is not equal; growth in advanced countries slowed and then stopped in 2009, while emerging and developing economies continue to grow rapidly

International experts expected global economic growth in 2010 and 2011, despite the high oil prices

Canada and Western Europe
–Canada is projected to show growth in 2010 and 2011
–Euro area is expected to grow in 2011
–U.K. and smaller European countries are expected to experience a recession

Mexico and Latin America
–Mexico is expected to show growth in 2010 and 2011
–Latin America and Caribbean economies are recovering at a robust pace

Japan
–Projected to show growth in 2010 and 2011

Other Asian Countries
–Lead by China emerging as a global economic power, growth is strong
–Key emerging economies is Asia are leading the global recovery

Emerging Europe
–Growth has been faster than in western Europe and continued growth is expected in 2010 and 2010

Commonwealth of Independent States
–Projected to show growth in 2010 and 2011
–With the collapse of communism, trade between the U.S. and central and Eastern Europe expanded substantially

Exports and the U.S. Economy
–In 2008, exports as a percentage of GDP reached its highest level since 1916
–In the past 50 years, exports have become increasingly important to the U.S. economy

General Agreement of Tariffs and Trade (GATT)
1. International organization of 153 nations dedicated to reducing or eliminating tariffs and other trade barriers

2. Most-favored-nation status (MFN)—Each member of GATT was to be treated equally by all other members

3. Kennedy Round, Tokyo Round, Uruguay Round, Doha Round

World Trade Organization (WTO)
1. Created in the Uruguay Round of GATT negotiation as a successor to GATT

2. WTO oversees GATT provisions, has judicial powers to meditate trade disputes arising from GATT rules and exerts more binding authority than GATT

North American Free Trade Agreement (NAFTA)
United States
Canada
Mexico
Chile is expected to become the 4th member
Central American Free Trade Agreement -Dominican Republic(CAFTA-DR)
El Salvador
Guatemala
Honduras
Nicaragua
Dominican Republic
Costa Rica
Association of Southeast Asian Nations (ASEAN)
Brunei
Myanmar
Cambodia
Indonesia
Laos
Malaysia
Philippines
Singapore
Thailand
Vietnam
International Economic Organizations Working to Foster Trade
North American Free Trade Agreement (NAFTA)
Central American Free Trade Agreement -Dominican Republic(CAFTA-DR)
Association of Southeast Asian Nations (ASEAN)
European Economic Area (EEA)
Pacific Rim
Commonwealth of Independent States (CIS)
Caribbean Basin Initiative (CBI)
Common Market of the Southern Cone (MERCOSUR)
Organization of Petroleum Exporting Countries (OPEC)
Organization for Economic Cooperation and Development (OECD)
Methods of Entering International Business:
Licensing
Licensing
A contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation

Advantage
-It allows expansion into foreign markets with little or no direct investment
Disadvantages
-The product image may be damaged if standards are not upheld
-The original producer does not gain foreign marketing experience

Methods of Entering International Business:
Exporting
May use an export/import merchant who assumes the risks of ownership, distribution, and sale

Letter of credit -Issued by a bank on request of an importer stating that the bank will pay an amount of money to a stated beneficiary

Bill of lading -Issued by a transport carrier to an exporter to prove merchandise has been shipped

Draft -Issued by the exporter’s bank, ordering the importer’s bank to pay for the merchandise, thus guaranteeing payment once accepted by the importer’s bank

May use an export/import agent who arranges sale for a commission or fee; the exporter retains title to products until they are sold

May establish own sales offices or branches in foreign countries

Methods of Entering International Business:
Joint Ventures
A partnership formed to achieve a specific goal or to operate for a specific period of time

Advantages
-Immediate market knowledge and access
-Reduced risk
-Control over the product attributes

Disadvantages
-Complexity of establishing agreements across national borders
-High level of commitment required of all parties involved

Methods of Entering International Business:
Totally Owned Facilities
Production and marketing facilities in one or more foreign nations

Advantage
-Direct investment provides complete control over operations

Disadvantage
-Risk is greater than that of a joint venture

Two forms
-Building new facilities in the foreign country
-Purchasing an existing firm in the foreign country

Methods of Entering International Business:
Strategic Alliances
Partnerships formed to create competitive advantage on a worldwide basis
Methods of Entering International Business:
Trading companies
–Firms that provide a link between buyers and sellers in different countries

–Takes title to products and perform all the activities necessary to move the products from one country to another

Methods of Entering International Business:
Countertrade
–An international barter transaction

–Avoids restrictions on converting domestic currency to foreign currency

Methods of Entering International Business:
Multi-national Enterprise
A firm that operates on a worldwide scale without ties to any specific nation or region
Sources of Export Assistance
National Export Strategy (NES)

Trade Promotion Coordinating Committee (TPCC)
-Assists U.S. firms in developing export-promotion programs
-Help American firms compete in foreign markets and create new jobs in the U.S.

Financing International Business:
The Export-Import Bank of the United States (Eximbank)
An independent agency of the U.S. government whose function it is to assist in financing the exports of American firms
Financing International Business:
Multilateral Development Bank (MDB)
An internationally supported bank that provides loans to developing countries to help them grow

World Bank, Inter-American Development Bank (IDB), Asian Development Bank (ADB), African Development Bank (AFDB), European Bank for Reconstruction and Development (EBRD)

Financing International Business:
The International Monetary Fund (IMF)
An international bank with 186 member nations that makes short-term loans to developing countries experiencing balance-of-payment deficits
A trading company provides a link between buyers from one country and sellers in another country.
a. True
b. False
True
Despite the global recession, economic growth in Asia remained strong in 2011 and 2012.
a. True
b. False
True
A country’s ________ is the total flow of money into a country minus the total flow of money out of the country over a period of time.
a. favorable balance of trade
b. balance of trade
c. balance of payments
d. comparative advantage
e. trade deficit
balance of payments
It can be said that the United States has an absolute advantage in research and development as well as high-technology.
a. True
b. False
False
If several hundreds of thousands of computers are sold on the domestic market for a ridiculously low price, what happens to the price of domestically produced computers?
a. The price of domestic computers is driven down.
b. The price of domestic computers can easily be raised by manufacturers.
c. Nothing – the two are not necessarily related.
d. The price of domestic computers will not change.
e. The price easily doubles of domestic computers.
Why are revenue tariffs levied?
a. To generate income for the government
b. To protect consumers of the product that the taxes are levied on
c. To generate revenue for the importing company
d. To generate revenue for the companies receiving the imported products
e. To protect the importing company
a. To generate income for the government
The Inter-American Development Bank focuses on helping developing countries grow.
a. True
b. False
True
GATT is headquartered in Washington D.C.
a. True
b. False
False
________ is our second largest export customer.
a. Mexico
b. Canada
c. England
d. Germany
e. France
Mexico
A grocery chain that directly purchases a portion of its products from outside the country rather than using an American distributor is engaging in international business.
a. True
b. False
True
Loans by the IMF are primarily provided to fund international trade.
a. True
b. False
True
Which of the following is least likely to be an economic consequence of trade restrictions?
a. Restrictions in consumers’ choices
b. Higher prices for consumers
c. Loss of jobs
d. Misallocation of international resources
e. Protection of the health of citizens
c. Loss of jobs
A multinational enterprise may operate in multiple countries but the business is based in one specific country.
a. True
b. False
False
Trade restrictions are applied to products exported to other countries more often than to imports.
a. True
b. False
False
One risk of licensing is the possibility that licensees may not adhere to quality standards required and expected by the licensing company.
a. True
b. False
True
Describe the advantages and disadvantages of sole proprietorships.
Advantages –
1. Ease of start-up
2. Pride of ownership
3. Retention of all profits
4. No special taxes
5. Flexibility of being your own boss

Disadvantages –
1. Unlimited liability
2. Lack of continuity
3. Lack of money
4. Limited management skills
5. Difficulty in hiring employees

Explain the different types of partners and the importance of partnership agreements.
General Partnerships
Limited Partnerships
Types of Partners: General Partners
General partner – A person who assumes full or shared responsibility for operating a business

General partnership – A business co-owned by two or more general partners who are liable for everything the business does

Types of Partners: Limited Partners
Limited Partners – A person who contributes capital to a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership

Limited partnership – A business co-owned by one or more general partners who manage the business and limited partners who invest money in it

Master limited partnership (MLP) – A business partnership that is owned and managed like a corporation but taxed like a partnership

The Partnership Agreement
Articles of partnership – An agreement listing and explaining the terms of the partnership; written is preferable to oral

Agreement should state
1. Who will make final decisions
2. What each partner’s duties will be
3. How much each partner will invest
4. How much profit or loss each partner receives or is responsible for
5. How the partnership can be dissolved

Describe the advantages and disadvantages of partnerships.
Advantages –
1. Ease of start-up
2. Availability of capital and credit
3. Personal interest
4. Combined business skills and knowledge
5. Retention of profits
6. No special taxes

Disadvantages –
1. Unlimited liability
2. Management disagreements
3. Lack of continuity
4. Frozen investment

Summarize how a corporation is formed.
Corporations
An artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts

Unlike a real person, however, a corporation exists only on paper

There are approximately 6 million corporations in the U.S.

They comprise about 19 percent of all businesses, but they account for 83 percent of sales revenues

Corporate Ownership
Stock – The shares of ownership of a corporation

Stockholder – A person who owns a corporation’s stock

Closed corporation – A corporation whose stock is owned by relatively few people and is not sold to the general public

Open corporation – A corporation whose stock is bought and sold on security exchanges and can be purchased by any individual

Forming a Corporation
Incorporation – the process of forming a corporation
Most experts recommend consulting a lawyer.
10 Aspects of Business that May Require Legal Help
1. Choosing either the sole proprietorship, partnership, corporate or some special form of ownership.
2. Constructing a partnership agreement.
3. Incorporating a business
4. Registering a corporation’s stock
5. Obtaining a trademark, patent, or copyright
6. Filling for licenses or permits at the local, state, and federal levels.
7. Purchasing an existing business or real estate
8. Creating valid contracts
9. Hiring employees and independent contractors
10. Extending credit and collecting debts.
Describe the advantages and disadvantages of a corporation.
Examine special types of corporations, including S-corporations, limited liability companies, and not-for-profit corporations.
Discuss the purpose of a joint venture and syndicate.
Explain how growth from within and growth through mergers can enable a business to expand.
A sole proprietorship is usually operated by more than one person.
a. True
b. False
False
Banks are more open to lending money to sole proprietorship than to any other type of business.
a. True
b. False
False
At least one general partner must be responsible for the debts of the limited partnership.
a. True
b. False
True
Most businesses incorporate in the states where they do most of their business.
a. True
b. False
True
Small businesses generally only issue common stock.
a. True
b. False
True
A joint venture can occur with a minimum of three groups or partners.
a. True
b. False
False
A major disadvantage of sole proprietorships is that profits earned by a sole proprietorship are subject to the special state and federal income taxes that corporations pay.
a. True
b. False
False
A syndicate is a long-term, permanent association of individuals or firms.
a. True
b. False
False
A vertical merger occurs between firms that operate at different but related levels of production and marketing.
a. True
b. False
True
The vast majority of economists and financial analysts agree that mergers are good for the U.S. economy.
a. True
b. False
False
Which of the following types of business ownership is the easiest to start?
a. Corporation
b. Master limited partnership
c. Sole proprietorship
d. General partnership
e. Limited partnership
Sole proprietorship
Which form of business has unlimited liability for all owners?
a. sole proprietorship
b. master limited partnership
c. C-corporation
d. closed corporation
e. limited partnership
a. sole proprietorship
There are approximately ________ partnerships in the United States.
a. 3 million
b. 3.8 million
c. 750,000
d. 975,000
e. 2 million
a. 3 million
Once a not-for-profit corporation is approved it must meet guidelines of the ______ to obtain tax-exempt status.
a. registered state.
b. Internal Revenue Service.
c. Small Business Association.
d. registered county.
e. Small Business Development Center.
b. Internal Revenue Service
alien corporation
a corporation chartered by a foreign government and conducting business in the United States
board of directors
the top governing body of a corporation, the members of which are elected by the stockholders
closed corporation
a corporation whose stock is owned by relatively few people and is not sold to the general public
common stock
stock owned by individuals or firms who may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others
corporate officers
the chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board of directors
corporation
an artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts
dividend
a distribution of earnings to the stockholders of a corporation
domestic corporation
a corporation in the state in which it is incorporated
foreign corporation
a corporation in any state in which it does business except the one in which it is incorporated
general partner
a person who assumes full or shared responsibility for operating a business
general partnership
a business co-owned by two or more general partners who are liable for everything the business does
hostile takeover
a situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger
joint venture
an agreement between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time
limited liability
a feature of corporate ownership that limits each owner’s financial liability to the amount of money that he or she has paid for the corporation’s stock
limited partner
a person who invests money in a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership
limited-liability company (LLC)
a form of business ownership that combines the benefits of a corporation and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership
merger
the purchase of one corporation by another
not-for-profit corporation
a corporation organized to provide a social, educational, religious, or other service rather than to earn a profit
open corporation
a corporation whose stock can be bought and sold by any individual
partnership
a voluntary association of two or more persons to act as co-owners of a business for profit

Less common form of ownership than sole proprietorship or corporation

No legal limit on the maximum number of partners; most have only two

Large accounting, law, and advertising partnerships have multiple partners

Partnerships are usually a pooling of special talents or the result of a sole proprietor taking on a partner

preferred stock
stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock owners
proxy
a legal form listing issues to be decided at a stockholders’ meeting and enabling stockholders to transfer their voting rights to some other individual or individuals
proxy fight
a technique used to gather enough stockholder votes to control a targeted company
S-corporation
a corporation that is taxed as though it were a partnership
sole proprietorship
A business that is owned (and usually operated) by one person

The simplest form of business ownership and the easiest to start

Many large businesses began as a small struggling sole proprietor ships

The most popular form of business ownership

stock
the shares of ownership of a corporation
stockholder
a person who owns a corporation’s stock
syndicate
a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital
tender offer
an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares
unlimited liability
a legal concept that holds a business owner personally responsible for all the debts of the business
sole proprietorship – advantages
Ease of start-up
Pride of ownership
Retention of all profits
No special taxes
Flexibility of being your own boss
sole proprietorship – disadvantages
Unlimited liability
Lack of continuity
Lack of money
Limited management skills
Difficulty in hiring employees
Corporations make up about ________ percent of all business and account for ________ of all sales revenues.
a. 19; 82
b. 32; 40
c. 8; 50
d. 5; 92
e. 10; 90
a. 19; 82
Which of the following is not a disadvantage of a corporation?
a. Expense of formation
b. Conflict within the corporation
c. Increased paperwork
d. Raising money
e. Difficulty of formation
d. Raising money
Which of the following is not a right of corporations?
a. The right to buy property
b. The right to start a business
c. The right to all profits
d. The right to sue
e. The right to enter into a contract
c. The right to all profits
A way for the firm to grow is through the takeover of another firm.
a. True
b. False
a. True
Non-profit laws are only federal and thus, the same laws exist in all fifty states.
a. True
b. False
b. False
Shares of ownership of a corporation are called stock.
a. True
b. False
a. True
A partnership can have a legal limit of no more than 12 partners.
a. True
b. False
b. False
One or more members of a board of directors are required for a corporation.
a. True
b. False
a. True
Limited partners participate in day-to-day business activities and operations.
a. True
b. False
b. False
Double taxation is a drawback of corporation business ownership.
a. True
b. False
a. True
In the eyes of the law, the owner of a sole proprietorship and the business are one and the same.
a. True
b. False
a. True
A way for a firm to grow is through the takeover of another firm.
a. True
b. False
a. True
Corporate officers are appointed by the board of directors.
a. True
b. False
a. True
Which of the following is not a qualification for S-corporation status?
a. No more than 12 stockholders
b. Only one class of stock
c. Individuals, estates, or certain trusts as stockholders.
d. Decision agreed to by all stockholders.
e. Must be a domestic corporation
a. No more than 12 stockholders
Most corporations grow by expanding their own present operations.
a. True
b. False
a. True
Which of the following is a false statement regarding limited-liability companies?
a. An LLC enjoys pass-through taxation.
b. LLCs are not recognized in all 50 states.
c. An LLC is not restricted to 100 stockholders.
d. The LLC type of organization provides more management flexibility when compared with corporations. (not d.)
e. An LLC extends the concept of personal-asset protection to small business owners
There are approximately ________ million nonfarm sole proprietorships in the United States.
a. 32
b. 40
c. 23
d. 55
e. 12
c. 23
If you earn 90 cents for each stock share that you own in XYZ corporation, you have earned a
a. tender offer.
b. cooperative.
c. dividend.
d. proxy.
e. stock share.
c. dividend.
Legally the sole proprietor of a business is the business.
True
False
False