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Economics test 3
UNIT 3 TEST
| Question | Answer |
|---|---|
| What is Sole Proprietorship? | A business owned by one person. -Could be started simply by putting up a Lemonade stand. |
| What are the ADVANTAGES of a sole proprietorship? | 1. Ease of starting up 2. relative ease of management 3. Owner enjoys all profit 4. No taxes have to be payed for selling 5. The psychological satisfaction of being their own boss 6. Ease of getting out of business |
| What are the DISADVANTAGES of a sole proprietorship? | 1. Owner has limited liability. (at fault for losses and debts) 2. Difficulty in raising financial capitol 3. Size and Efficiency 4. The proprietor has limited managerial experience 5. Difficulty in attracting Qualified Employers. 6. Limited Life |
| What is a Partnership? | A business owned by two or more people. -could be started by formal legal papers being drawn up to specify arrangements between partners. |
| What are the ADVANTAGES of Partnership? | 1. Ease of Establishment 2. Ease of Management 3. Lack of special taxes 4. Attracts financial capital than sole proprietorship 5. Larger size makes for more efficient opperations 6. Attract top talent into organizations |
| What are DISADVANTAGES of Partnership? | 1. Each partner is fully responsible for everything. 2. Limited partnerships had limited liability 3. A partnership has limited life (if one partner leaves theres reorganization and/or the business dissolves. 4. Banks still don't lend money for anythin |
| General Partnership is... | When all partners are responsible for the management and financial obligations for the business. |
| Limited Partnership is... | when at least one partner is not active in the daily running of the business. |
| What is a Corporation? | a form of business organization recognized by law as a separate legal entity having all the rights of an individual |
| What are ADVANTAGES of a corporation? | 1. Ease of raising financial capital 2. The corporation can hire professional management 3. Corporation provides limited liability for its owners. 4. Unlimited Life 5. Ease of transferring ownership (simple sell of stock. |
| What are DISADVANTAGES of a corporation? | 1.Difficulty and expense of getting a charter 2.The owners/Shareholders have no say in anything after voting upon board of directors 3.Double taxation of corporation profits - stockholders are taxed twice 4.corporations have government regulation |
| What is a MERGER? | a combination of two or more businesses to form a single firm. |
| Two different types of mergers | Horizontal and Vertical |
| Horizontal merger takes place when... | two or more firms that produce the same kind of product join forces. |
| Vertical merger takes place when... | firms involved in different steps of manufacturing or marketing join together. |
| What is a Conglomerate? | a firm that has at least four business, each making each unrelated products, none of which is responsible for a majority of its sales. |
| What is a Multinational? | a corporation that has manufacturing or service operations in a number of countries. |
| Laissez-Faire is... | The philosophy that government should not interfere with commerce or trade. |
| Who is Adam Smith? | He allowed government intervention if it was to: -Protect private property. -Enforce contracts. -Protect key industries from foreign competition. |
| Market Structure is... | The nature and degree of competition among firms operating in the same industry. |
| What is Perfect (pure) Competition? | Characterized by a large number of well-informed independent buyers and sellers who exchange IDENTICAL products. |
| Monopolistic Competition is... | the market structure that has all the conditions of perfect competition EXCEPT for identical products. |
| Monopoly is... | a market structure with only one seller of a particular product. |
| Four different types of monopoly... | Natural Geographic Technological Government |
| What is Natural Monopoly? | a market situation where the costs of production are minimized by having a single firm produce the product. |
| Franchise... | The exclusive right to do business in a certain area without competition. |
| What is Geographic Monopoly? | a monopoly based on the absence of sellers in a certain geographic area. |
| What is Technological Monopoly? | a monopoly that is based on ownership or control of a manufacturing method, process or other scientific advance. |
| What is Government Monopoly? | a monopoly the government owns and operates. Found at National, State, and local levels. |
| An Oligopoly is... | a market structure which a few very large sellers dominate the industry. |
| A Collusion is... | A formal agreement to set prices or to otherwise behave in a corporate manner. |
| Price Fixing is... | a form of Collusion thats agreeing to charge the same or similar prices for a product. |
| A Cartel is... | a group of sellers/producers acting together to raise prices by restricting availability of a product. |
| Why do market failures occur? | INADEQUATE COMPETITION INADEQUATE INFORMATION RESOURCE IMMOBILITY EXTERNALITIES |
| When do market failures occur? | when any of the four conditions are significantly altered. |
| How does the government maintain competition? | Price Discrimination: Charging costumers different prices for basically the same product. |
| What is the economic impact of Taxes? | affects resource allocation, costumer behavior, and the nation's productivity and growth. |
| What are the two principles of taxation? | Benefit Principle Ability-to-Pay Principle |
| Benefit Principle is... | those who benefit from government goods and services should pay in proportion to the amount of benefits they receive. |
| Ability-to-Pay Principle is... | the belief that people should be taxed according to their ability to pay, regardless to the benefits they receive. |
| Proportional tax... | Imposes the same percentage rate of taxation on everyone, regardless of income. |
| Progressive tax... | is a tax that imposes a higher percentage rate of taxation on persons with higher incomes. |
| Regressive tax... | is a tax that imposes a higher percentage of taxation on low incomes than on high incomes. |
| Federal taxes | Income: Personal, Business and Corporate. Payroll: social security, medicare (FICA) Excise:luxury items or alcohol, tobacco Gift: over 10,000$ Estate: property of dead person Costumes and Duties: Imported goods |
| State taxes | Income, Corporate Sales: retail products |
| Local taxes | Sales: retail products Property: Property and boats |
| What is FICA? | Federal Insurance Contribution tax that takes money out of paycheck for social security and medicare. |
| Indexing of tax brackets (what is it and what does it do?) | tax brackets are adjusted for inflation so that pay raise will not put someone into a higher tax bracket and pay more taxes. |
| What is Incidence of a tax? | placing a tax without knowing who's going to pay it. |
| Public vs. Private sector... | public is AMERICANS ONLY and private is borrowing from NONAMERICANS |
| Transfer Payments happen when... | government does not get goods or services in return for the money it spends. - borrows money from private sectors. |
| impact of government spending... | -to pay for them, government has to borrow money, usually by selling saving bonds. -increases INCREASES federal and national debt. |
| Federal Budget | an annual plan outlining proposed revenuesand expenditures for the coming year. |
| Budget Surplus | budget that shows a positive balance after expenditures are subtracted from revenue. |
| Federal Debt. | the total amount borrowed from investors to finance the government's deficit spending. |
| Balanced Budget Amendment | Whatever is spent must be payed back in taxes. Some states only allow their spending to equal their revenues. |
| Impact of the National Debt | federal debt draws out money from private sectors which effects the national debt. |
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