Economics and Personal Finance/Businesses

An entrepenuer is a businessman who takes risks in starting their own, new business and develop innovative products. They earn a profit when buyers purchase their products at prices higher than the production costs. Competition is increased when new goods/services are brought into the market and the urge to innovate is striving.

A start-up business is a company that is in its early stages of development. It is started by 1-3 founders who had to take a loan or ask investors for help to make things possible. Its goal is to grow.

Businesses

Sole Proprietorship

Positive: Full control, full receiver of all profits, easy to stop

Negative: A lot of liability, limited capital for expansion

Makes up 75% of businesses and 6% of sales

Partnership

Business organizations owned by multiple people.

Positives: Shared decision making, complimentary qualities, larger pool of assets = more expansion

Negatives: A lot of liability, potential for conflict (greed)

It makes up 7% of businesses and 5% of sales.

Corporations

Legal entities owned by stockholders

Positives: Not so much liability, capital investment, and expansion is easy, lasts for a lifetime

Negatives: Taxed twice as much, stockholders hold no control

It makes up 20% of businesses and 90% of sales.

GDP

Formula: C + I + G + (X-M) [Consumption + Investments + Government Spendings + (Exports - Imports)]
GDP, or Gross Domestic Product, is the currency value of all of a country's final goods and services produced in a year. It is the measure of a nation's economic health.

Consumption

This is the amount of goods and services purchased by households, such as groceries, vacations, movies, and clothes.

Investments

• Amount spent by businesses on resources, usually for production.
• Purchases of new homes by their consumers

Government Spending

• Amount spent on federal, state, and local gov't provided goods and services, such as roads and [for the] military.

Exports/Imports

• X: Goods we ship to foreign countries
• M: Goods that are brought in from other countries

What's Not Included in GDP

• Intermediate goods (tires of a car)
• Used goods
• Underground goods (black market: kidneys being sold)
• Financial transactions (stocks/bonds)
• Household production
• Leisure/environment
• Mental/physical well-being

Money

Revenue

Formula: P • Q [Price • Quantity]
Income of companies come from the sales of its goods and services

Profit

Formula: R - E = P/L [Revenue - Expenses = Profit/Loss]
The profit of companies is interpreted as total expenses subtracted from the total revenue.

Productivity

Formula: Divide net sales (output) by number of employee hours (input).

Productivity increases with better capital:

• Human capital - Education, training, experience
• Physical capital - Tools, technologies

Competition

Competition amongst producers/sellers leads to more choices, better quality, and decreased prices.

Competition amongst consumers lead to higher prices and provides goods to those willing to pay most.

Collusion and monopolies reduce competition and raise prices. Collusions are competing firms who make secret agreements in order to control the market. Monopolies are where only one firm controls the price and supply of goods/services. This is if one controlling firm is the sole seller of its product and its product does not have any alternates.

Franchise

Franchises are semi-independent businesses that pay fees to its parent company.

The positives are that it has a built-in reputation/brand recognition, contains automatic management and training support, lower failure rates, buying power, profits, and national advantage. The negatives are that it has high registry fees/start-up costs, strict operating standards, limited freedom in business management, ongoing costs, and limited product lines.