Exam 2


Terms in this set (...)

3. Absolute advantage
A monopoly that exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item
Comparative advantage
The basis of most international trade, when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items
The transferring of manufacturing or other tasks (such as data processing) to countries where the labor and supplies are less expensive
The sale of goods and services to foreign markets
Balance of trade
The difference in value between a nations exports and its imports
Favorable balance of trade
Also known as a trade surplus. When a nations exports more goods than it imports
A restriction on the number of units of a particular product that can be imported into a country
Trade embargo
A prohibition on trade of a particular product (prohibits it)
The act of a country or business selling products at less than what it costs to produce them
3 countries in NAFTA
Canada, the United States, and Mexico
United States' largest trading partner
Primary reason for the World Bank
To loan money to underdeveloped and developing countries
A trade agreement in which one company (the licensor) allows another country (the license) to use its company name, products, patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee or royalty
A form of licensing in which a company (the franchiser) agrees to provide a (franchisee) a name, logo, methods of operation, advertising, products, and other elements associated with the francahser's business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser's stands of operations
The relocation of business processes by a company or subsidiary to another country. Different from outsourcing because the company retains control of the offshore processes.
Joint venture
A partnership established for a spicific project or for a limited time
4. Which form of business is easiest to conduct and is owner by one person
Sole proprietorship
Advantages of sole proprietorship
Generally managed by their owners. Because of simple management structure, the owners/manager can make decisions quickly
Number of people who work for a sole proprietorship
Typically employing fewer than 50 people
Least used form of business in U.S.
Under what circumstances are limited partnerships generally used
When general partners are looking more so for money rather than another general partner
Limited partnership
A business organization that has at least one general partner, who assumes unlimited liability, and at least one limited partner, whose liability is limited to his or her investment in the business
Advantages of partnership (over sole proprietorship)
Availability of capital and credit, combined knowledge and skills
A legal entity, created by the state, whose assets and liabilities are seperate from its owners
Profits of a corporations that are distributed in the form of cash patents to stockholders
Domestic corporation
If conducting business in the state in which it is chartered
Private corporation
A corporation owned by just one or a few people who are closely involved in managing the businesses
Nonprofit corporations
Corporations that focus on providing a services rather than earning a profit but are not owned by a governments entity
Benifits of being a preferred stockholder
Special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do
Which form of business ownership can raise funds most easily
Disadvantages of a corporation
Double taxation, expensive to form, disclosure of information to the government and the public, owners and managers are not always the same and can have different goals
Cooperative (co-op)
An organization composed of individual or small businesses that have banded together to reap the benifits of belonging to a larger organization
The purchase of one company by another, usually by buying its stock
5. Which type of business has created the majority of new job annually
Small business
Why is retailing an attractive industry for small businesses
Relatively easy to enter and requires low initial financing
Major reason people want to own their own business
Independence, flexibility
Disadvantages of small businesses
High stress level, high failure rate, under capitalization, managerial inexperienced or incompetences, and inability to cope with growth
Principle immediate threat to small and mid-sized businesses
Business plan
A precise statement of the rationale for a business and a step-by-step explanation of how it will acheive its goals
Equity financing
The owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business
Venture capitalists
Persons or organizational that agree to provide some funds for a new business in exchange for an ownership interest or stock
Debt financing
New business sometimes borrow more than half of their financial resources from banks, federal, friends and family
Small business line of credit
An agreement by which a financial institution promises to lend a business a predetermined sum on demand
Trade credit
Small businesses may obtain funding from their suppliers
Trading a small businesses own products for goods and services offered by other businesses
The purchaser of a franchise
Drawbacks of franchising
Fees and profit sharing, standardized operations, restriction on purchasing, limited product line, possible market saturation and less freedom in decisions