Economics Chapter 3 Test

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This is a study guide for Chapter 3 from the textbook Glencoe Economics Principles and Practices. It includes: * All the vocabulary from chapter 3 *27 Question and Answer YOU SHOULD KNOW * 2 Useful Essay Questions YOU SHOULD KNOW Ready to "Ace that Test"? Format: Answers as close to one word answers as possible. Prepared for use in Quizlet games for preferences.

Sole proprietorship or proprietorship

business owned and run by a single person who has the rights to all profits and unlimited liability for all debts of the firm

Unlimited liability

requirement that an owner is personally and fully responsible for all losses and debts of the business

Inventory

stock of finished goods and parts held in reserve

Partnership

unincorporated business owned and operated by two or more people who share the profits and responsibility for debts

General partnership

form of partnership where all partners are equally responsible for management and debts

Limited partnership

form of partnership where one or more partners are not active in the daily running of the business and have limited responsibility

Corporation

form of business organization recognized by law as a separate legal entity

Charter

written government approval to establish a corporation

Stock

certificate of ownership in a corporation

stockholders or shareholders

people who own a share or shares of stock in a corporation

dividend

check that transfers a portion of the company profits to stockholders, usually quarterly

common stock

most frequently used form of corporate ownership, with one vote per share for stockholders

preferred stock

form of corporate ownership without vote, in which stockholders get their investments back before common stockholders

bond

formal contract to repay borrowed money with interest

principal

amount borrowed when getting a loan or issuing a bond

interest

payment made for the use of borrowed money

double taxation

taxation of dividends both as corporate profit and as personal income

merger

combination of two or more businesses to form a single firm

income statement

report showing a firm's sales, expenses, net income, and cash flows for a certain period, usually three months or a year

net income

common measure of business profits determined by subtracting all expenses, including taxes, from revenues

depreciation

gradual wear on capital goods

cash flow

total amount of new funds a business generates from operations

horizontal merger

combination of two or more firms producing the same kind of product

vertical merger

combination of firms involved in different stages of manufacturing or marketing

conglomerate

firm with four or more businesses making unrelated products, with no single business responsible for a majority of its sales

multinational

corporation producing and selling without regard to national boundaries and whose business activities are located in several different countries

nonprofit organization

economic organization that operates like a business but does not seek financial gain

cooperative or co-op

nonprofit association performing some kind of economic activity for the benefit of its members

credit union

nonprofit service cooperative that accepts deposits, makes loans, and provides other financial services

labor union

organization that works for its members' interests concerning pay, working conditions, and benefits

collective bargaining

negotiation between union and company representatives over pay, benefits, and other job-related matters

professional association

nonprofit organization of professional or specialized workers seeking to improve working conditions, skill levels, and public perception of its profession

chamber of commerce

nonprofit organization of local businesses formed to promote their interests

better business bureau

business sponsored nonprofit organization providing information on local companies to consumers

public utility

company providing an essential service such as water or electricity to consumers

proprietorship partnership corporation

What are the three types of business organizations?

business owned and run by a single individual

What is a sole proprietorship?

business licenses and fees

How is a sole proprietorship formed?

A sole proprietorship is easy to start up

A sole proprietorship [EASY] or [HARD] to start up?

In a sole proprietorship management is simple

In a sole proprietorship is management [SIMPLE] or [COMPLEX]?

In a proprietorship, with profits of successful management, the owner does not have to share the profits with other owners

In a proprietorship, with profits of successful management, the owner [DOES] or [DOES NOT] have to share the profits with other owners.

The proprietorship does not have to pay separate business income taxes

The proprietorship [DOES] or [DOES NOT] have to pay separate business income taxes because the business is not recognized as a separate legal entity.

Many people get a psychological satisfaction from being their own boss

What type of satisfaction do many people get from being their own boss?

It is easy to get out of business

It is [EASY] or [DIFFICULT] to get out of business

Limited life

situation in which a firm ceases to exist when an owner dies, quits, or sells the business

The main disadvantage of proprietorship is that the owner of the business has unlimited liability

The main disadvantage of a proprietorship is that the owner of the business has [LIMITED] or [UNLIMITED] liability?

In a proprietorship it is easy to raise financial capital

In a proprietorship it is [EASY] or [DIFFICULT] to raise financial capital?

The size and efficiency of a proprietorship is a disadvantage

The size and efficiency of a proprietorship [IS] or [IS NOT] a disadvantage?

The proprietor often has limited managerial experience

The proprietor often has [UNLIMITED] or [LIMITED] managerial experience?

It is difficult to attract qualified employees

It is [EASY] or [DIFFICULT] to attract qualified employees in a sole proprietorship?

The sole proprietorship is limited life

The sole proprietorship is [UNLIMITED] or [LIMITED] life?

a business jointly owned by two or more persons

What is a partnership?

general partnership and limited partnership

What are two types of a partnership?

articles of partnership are drawn up

How is a partnership formed?

Partnerships can usually attract financial capital more easily than proprietorship

Partnerships [CAN] or [CAN NOT] usually attract financial capital more easily than proprietorship?

There is a lack of special taxes on a partnership

There [IS] or [IS NOT] a lack of special taxes on a partnership?

In a partnership management is easy

In a partnership management is [EASY] or [DIFFICULT]?

Partnerships are more efficient operations that come with their slightly larger size

Partnerships [ARE NOT] or [ARE] more efficient operations that come with their slightly larger size?

Partnerships finds it more easier to attract top talent than proprietorship

Partnerships often find it more [DIFFICULT[ or [EASIER] to attract top talent than proprietorship?

A partnership is easy to start up

A partnership is [EASY] or [DIFFICULT] to start up?

In general partnerships each partner is fully responsible for the acts of all other partners

In a general partnerships each partner is [NOT] or [IS] fully responsible for the acts of all other partners?

There is usually potential for conflict between partners

There [IS] or [IS NOT] usually potential for conflict between partners?

In the case of the limited partnership a partner's responsibility for the debts of the business is limited by the size of his or her investment in the firm

In the case of the limited partnership a partner's responsibility for the debts of the business [IS] or [IS NOT] limited by the size of his or her investment in the firm?

A partnership does have limited life like a proprietorship

A partnership [DOES NOT] or [DOES] have limited life like a proprietorship?

Corporations

How is 90% of all business done in the United States?

People must file for permission from the national government or the state where the business will have its headquarters.

How is a corporation formed?

common stock or preferred stock

What is the structure of a corporation?

1) The ease of raising financial capital
2) Limited liability for its owners
3) Directors of the corporation can hire professional managers to run the firm
4) Corporation continues to exist when ownership changes

What are the strengths of a corporation?

1) Double taxation of corporate profits
2) Difficulty and expense of getting a charter
3) Owners/shareholders have little voice in how the business is run
4) Subject to more government regulation

What are the weaknesses of a corporation?

One vote for each share of stock. The vote is used to elect a board of directors.

How do stock holders vote in corporate businesses?

Common stock holders have the power to vote and elect members for the board of directors. However, preferred stock holders receive their dividends first.

How do common stock holders differ from preferred stock holders?

Reinvestment and mergers

What two ways businesses expand and grow?

When a firm has multiple businesses so if one type fails, the whole firm doesn't go down.

What is diversification?

A multinational has its manufacturing and service operations in different countries, while a conglomerate has at least 4 businesses not necessarily in different countries.

How does a conglomerate differ from a multi-national?

To promote the interests of others rather than financial gain for its owners.

What are the purposes of a non profit organizations?

Indirect: To help the economy operate smoothly and efficiently, and help its citizens through services such as social security, veterans benefits, and financial aid to students
Direct: To produce and distribute goods and services (police, education, etc.) to consumers

What are the direct and indirect roles of government within our economy?

consumer: buys goods in bulk for its members
services: provides services rather than goods
producer: helps members to promote/sell goods

How do three kinds of cooperatives differ?

Credit unions are much more fair and less about profit for the institution.

Why do many people prefer to deal with credit unions rather than banks?

The main advantage of a corporation is the ease of raising financial capital

The main advantage of a corporation [IS] or [IS NOT] the ease of raising financial capital?

The corporation provides limited liability

The corporation provides [UNLIMITED] or [LIMITED] liability?

The directors of a corporation can hire professional managers to run the firm

The directors of a corporation [CAN] or [CAN NOT] hire professional managers to run the firm?

unlimited life

What is it called when the corporation continues to exist even when ownership changes?

Transferring ownership of a corporation is easy

Transferring ownership of a corporation is [EASY] or [DIFFICULT]?

Sales and Expense

What kind of detailed records must a corporation keep so that it can pay taxes on its profits?

The difficulty and expense of obtaining a charter

What features of obtaining a charter causes a disadvantage for the corporate structure?

Owners or Shareholders have little voice in how the business is run

Who has a little voice in how the business is run?

Corporations are subject to more government regulation than other forms of business

What are corporations subjected more to?

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