Concept economics

8/11/2019 Concept economics

1/38


2/38

Business organisations

A business (also called a company,

enterprise or firm) is a legally recognized

organization designed toprovide goods

and/or services to consumers.

Businesses are predominant in capitalist

economies, most being privately owned

and formed to earn profit that will increasethe wealth of its owners and grow the

business itself.


3/38

Business organisations

The owners and operators of a businesshave as one of their main objectives thereceipt or generation of a financial return

in exchange for work and acceptance ofrisk.

Notable exceptions include cooperativeenterprises and state-owned enterprises.

Businesses can also be formed not-for-profitor be state-owned.


4/38

The Circular Flow of Economic

Activity

The c i rcular f low of

econom ic act iv i ty

shows theconnections between

firms and households

in input and output

markets.


5/38

Outpu t , or product ,

marketsare the

markets in which goods

and services areexchanged.

Input marketsare the

markets in which

resourceslabor,capital, and landused

to produce products,

are exchanged.

Payments flow in the

opposite direction as

the physical flow of

resources, goods,

and services

(counterclockwise).


6/38

Input Markets

Input markets include:

The labo r market, in which households supply work for

wages to firms that demand labor.

The capital market, in which households supply theirsavings, for interest or for claims to future profits, to firms

that demand funds to buy capital goods.

The land market, in which households supply land or

other real property in exchange for rent.


7/38

ORGANISATION organization

[awr-guh-nuh-zey-shuhn]

1.the act or process oforganizing.

2.the state or manner of being organized.

3.something that is organized.

4.organic structure; composition: The organiz

ation of this painting isquite remarkable. 5.a group of persons organized for some end

or work; association:a nonprofit organization.
http://dictionary.reference.com/browse/organizehttp://dictionary.reference.com/browse/organizedhttp://dictionary.reference.com/browse/organichttp://dictionary.reference.com/browse/organichttp://dictionary.reference.com/browse/organizedhttp://dictionary.reference.com/browse/organize


8/38

Basic forms of ownership


9/38

Two Sectors

The economy can be divided into two

sectors:

The Private Sector

The Public Sector


10/38

The Private Sector

Private individuals and firms that are

owned by private individuals

Forms of business ownership vary by

jurisdiction, there are several common

forms:

Sole proprietorship

Partnership

Corporation

Cooperative


11/38

Sole proprietorship

A sole proprietorship also known as a soletrader, or simply proprietorship is a typeof business entity which is owned and runby one individual and where there is no

legal distinction between the owner andthe business.

All profits and all losses accrue to the owner

(subject to taxation).All assets of the business are owned by theproprietor and all debts of the business aretheir debts and they must pay them from

their personal resources.


12/38

This means that the owner has unlimitedliability. It is a "sole" proprietorship in thesense that the owner has no partners(partnership).

A sole proprietor may do business with a

trade name other than his or her legalname.

This also allows the proprietor to open a

business account with banking institutions.


13/38

Partnership

A partnership is a type of business entity in

which partners (owners) share with each

other the profits or losses of the business.

Partnerships are often favoured over

corporations for taxation purposes, as the

partnership structure does not generally

incur a tax on profits before it is distributedto the partners (i.e. there is no dividend tax

levied).


14/38

However, depending on the partnership

structure and the jurisdiction in which it

operates, owners of a partnership may be

exposed to greater personal liability thanthey would as a shareholder of a

corporation.


15/38

Corporation

A corporation is a legal entity separatefrom the shareholders and employees.

In British tradition it is the term designating a

body corporate, where it can be either acorporation sole (an office held by anindividual natural person, which is a legalentity separate from that person) or acorporation aggregate (involving morepersons).


16/38

In American and, increasingly,

international usage, the term denotes a

body corporate formed to conduct

business.

Corporations exist as a product of corporatelaw, and their rules balance the interests

of the management who operate thecorporation; creditors who loan it goods,services or money;


17/38

shareholders, typically in the secondary market, whohold shares related to the original investment ofcapital; the employees who contribute their labour;and the clients they serve.

People work together in corporations to producevalue and generate income.

In modern times, corporations have become anincreasingly dominant part of economic life.

People rely on corporations for employment, for their

goods and services, for the value of the pensions, for

economic growth and cultural development.


18/38

Cooperative

A cooperative often referred to as a co-

op or coop) is defined by the

In ternat ional Co-operative Alliances

Statement on the Co-operat ive Ident i ty

as an autonomous association of persons

united voluntarily to meet their common

economic, social, and cultural needs andaspirations through a jointly-owned and

democratically-controlled enterprise


19/38

It is a business organization owned and

operated by a group of individuals for theirmutual benefit.

A cooperative may also be defined as a

business owned and controlled equally bythe people who use its services or who

work at it.

Cooperative enterprises are the focus ofstudy in the field of cooperative

economics.


20/38

Also

Economic democracy

Franchising

Joint venture Holding companies


21/38

Holding company

holding company is a company or firm thatowns other companies' outstanding stock.

It usually refers to a company which does

not produce goods or services itself, ratherits onlypurpose is owning shares of other

companies.

Holding companies allow the reduction ofrisk for the owners and can allow the

ownership and control of a number of

different companies.


22/38

Econom ic democ racy

Econom ic democracyis a socioeconomic

philosophy that suggests transfer of

decision-making authority from a small

minority of corporate shareholders to thelarger majority of public stakeholders.

While there is no single definition or

approach, all theories and real-worldexamples of economic democracy are

based on a core set of fundamental

assumptions.


23/38

Proponents generally agree that modern

economic conditions tend to hinder or

prevent society from earning enough

income to purchase its output production.

Centralized corporate monopoly of common

resources typically forces conditions of

artificial scarcity upon the greater majority,

resulting in socio-economic imbalances

that restrict workers from access toeconomic opportunity and diminish

consumer purchasing power.


24/38

Franchising

Franchising is the practice of using another

person's business model.

The franchisorgrants the independent

operator the right to distribute its products,

techniques, and trademarks for a

percentage of gross monthly sales and a

royalty fee.


25/38

Various tangibles and intangibles such as

national or international advertising,training, and other support services arecommonly made available by thefranchisor.

Agreements typically last from five to thirtyyears, with premature cancellations orterminations of most contracts bearing

serious consequences for franchisees.


26/38

Franchising has been around for manycenturies but did not come to prominenceuntil the 1930s in the United States, whenthe establishment of electricity, vehicles,and, in the 1950s, the Interstate Highway

system helped propel modern franchising,most notably franchise-based food serviceestablishments.

According to the International FranchiseAssociation approximately 4% of allbusinesses in the United States arefranchises.


27/38

Joint venture

Ajoint venture (often abbreviated JV) is anentity formed between two or more parties

to undertake economic activity together.

The parties agree to create a new entity by

both contributing equity, and they then

share in the revenues, expenses, and

control of the enterprise.

The venture can be for one specific project

only, or a continuing business relationship

such as the Fuji Xerox joint venture.


28/38

This is in contrast to a strateg ic al l iance,

which involves no equity stake by theparticipants, and is a much less rigidarrangement.

The phrase generally refers to thepurposeof the entity and not to a type of entity.

Therefore, a joint venture may be acorporation, limited liability company,partnership or other legal structure,depending on a number of considerationssuch as tax and civil liabilities.


29/38

The Public Sector

Made up of central government,

local government, and businesses

that are owned by government

In the last twenty years the number

of government-owned firms in the UK has

shrunk massively

Now, very few examples remain:

for instance, the Royal Mail


30/38

Private Sector Firms

One of the key differences is between:

Sole traders and partnerships

whose liability is unlimited

And

Private Limited and Public Limited

Companies, who have limited liability


31/38

Other Business Types

Co-operatives are owned by their staff,

who are members of the firm

Profits are shared

amongst the members

Losses too must be shared


32/38

Franchises

Many businesses todayare franchises

A business idea is licensed

to a franchisee The owners of the brand receive

a license fee

The franchisee gains the rightto use the business brand


33/38

Not For Profit Businesses

Many charity-based businessorganisations are run as not for profitoperations

They typically receive donationsor funds from groups or government

Any financial surplus is ploughed back into

the business The organisation does not aimto generate profits


34/38

Inflation

According to Parkin and Bade Inflation is

an upward movement in the average level

of prices. Its opposite is deflation, a

downward movement in the average levelof prices. The boundary between inflation

and deflation is price stability.


35/38

Wage inflation is also called as demand

pull or excess demand inflation. This type

of inflation occurs when total demand for

goods and services in an economyexceeds the supply of the same.


36/38

Pricing Power Inflation is more often called

as administered price inflation. This type of

inflation occurs when the business houses

and industries decide to increase the priceof their respective goods and services to

increase their profit margins.


37/38

What is CPI?

CPI measures changes in the price level

of market basket of consumer goods andservices purchased by households


38/38

The consumer Price Index market basket

is developed from detailed monthlyrecords kept by govt. officials who are

hired to track and record prices of

preselected items in stores. The importantrole of CPI market basket is specifically to

measure inflation as experienced by

consumers in their day-to day livingexpenses.

Concept economics

Documents

Transcript of Concept economics