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BUS - 101 Mid-term

Terms in this set (167)

Macroeconomics
The study of a country's overall economic dynamics, such as the employment rate, the gross domestic product, and taxation policies.
Microeconomics
the study of smaller economic units such as individual consumers, families, and individual businesses
fiscal policy
Government efforts to influence the economy through taxation and spending
monetary policy
Federal Reserve decisions that shape the economy by influencing interest rates and the supply of money
Federal Deposit Insurance Corporation (FDIC)
A federal agency that insures deposits in banks and thrift institutions for up to $250,000 per customer, per bank.
Capitalism
An economic system—also known as the private enterprise or free market system—based on private ownership, economic freedom, and fair competition.
pure competition
A market structure with many competitors selling virtually identical products. Barriers to entry are quite low. (Almost doesn't exist)
Monolistic Competition
A market structure with many competitors selling differentiated products. Barriers to entry are low. (Largest competition)
Oligopoly (Competition)
A market structure with only a handful of competitors selling products that can be similar of different. Barriers to entry are typically high. (Few sellers. Lots of buyers.)
Monopoly (Competition)
A market structure with one producer completely dominating the industry, leaving no room for any significant competitors. Barriers to entry tend to be virtually insurmountable. (mostly government based)
natural monopoly (Competition)
A market structure with one company as the supplier of a product because the nature of that product makes a single supplier more efficient than multiple, competing ones. Most natural monopolies are government sanctioned and regulated.
supply
The quantity of products that producers are willing to offer for sale at different market prices.
supply curve
the graphed relationship between price and quantity from a supplier standpoint
demand
The quantity of products that consumers are willing to buy at different market prices.
demand curve
the graphed relationship between price and quantity from a consumer demand standpoint
Socialism
an economic system based on the principle that the government should own and operate key enterprises that directly affect public welfare. (Planned economies)
Communism
An economic and political system that calls for public ownership of virtually all enterprises, under the direction of a strong central government. (Planned economies)
mixed economies
Economies that embody elements of both planned and market-based economic systems.
Privatization
The process of converting government-owned businesses to private ownership.
Gross Domestic Product (GDP)
the total value of all final goods and services produced within a nation's physical boundaries over a given period of time
unemployment rate
the portion of people in the labor force over age 16 who do not have jobs and are actively seeking employment
business cycle
The periodic contraction and expansion that occur over time in virtually every economy.
Recession
An economic downturn marked by a decrease in the GDP for two consecutive quarters.
Depression
An especially deep and long-lasting recession.
recovery
a period of rising economic growth and employment
expansion
a period of robust economic growth and high employment
inflation
a period of rising average prices across the economy
Hyperinflation
An average monthly inflation rate of more than 50 percent.
Consumer Price Index (CPI)
A measure of inflation that evaluates the change in the weighted-average price of goods and services that the average consumer buys each month.
Productivity
the basic relationship between the production of goods and services (output) and the resources needed to produce them (input) calculated via the following equation: output/input = productivity
profit
the money that a business earns in sales (or revenue), minus expenses, such as the cost of goods and the cost of salaries. Revenue - Expenses = Profit (or Loss)
loss
when a business incurs expenses that are greater than its revenue
Entrepreneurs
people who risk their time, money, and other resources to start and manage a business
standard of living
the quality and quantity of goods and services available to a population
nonprofits
business-like establishments that employ people and produce goods and services with the fundamental goal of contributing to the community rather than generating financial gain (same as businesses)
factors of production
land, labor, capital, entrepreneurship, knowledge, and technology
speed-to-market
the rate at which a new product moves from conception to commercialization
free trade
an international economic and political movement designed to help goods and services flow more freely across international boundaries
General Agreement on Tariffs and Trade (GATT)
An international trade agreement that has taken bold steps to lower tariffs and promote free trade worldwide.
ethics
a set of beliefs about right and wrong, good and bad
universal ethical standards
ethical norms that apply to all people across a broad spectrum of situations (no such thing)
caring, citizenship, fairness, respect, responsibility, trustworthiness
ethical dilemma
a decision that involves a conflict of values; every potential course of action has some significant negative consequences
Social Responsibility
the obligation of a business to contribute to society (Someone decided what you are doing is not good enough)
stakeholders
any groups that have a stake - or a personal interest - in the performance and actions of an organization
planned obsolescence
the strategy of deliberately designing products to fail in order to shorten the time between purchases
commercial banks
Privately owned financial institutions that accept demand deposits and make loans and provide other services for the public
value
the relationship between the price of a good or a service and the benefits that it offers its customers
opportunity cost
the opportunity of giving up the second-best choice when making a decision
absolute advantage
the benefit a country has in a given industry when it can produce more of a product than other nations using the same amount of resources
comparative advantage
the benefit a country has in a given industry if it can make products at a lower opportunity cost than other countries
foreign outsourcing
(also contract manufacturing) Contracting with foreign suppliers to produce products, usually at a fraction of the cost of domestic production.
importing
buying products domestically that have been produced or grown in foreign nations
Exporting
selling products in foreign nations that have been produced or grown domestically
Partnership
a voluntary agreement under which two or more people act as co-owners of a business for profit
joint ventures
when two or more companies join forces - sharing resources, risks, and profits, but not actually merging companies - to pursue specific opportunities
strategic alliance
An agreement between two or more firms to jointly pursue a specific opportunity without actually merging their businesses. Strategic alliances typically involve less formal, less encompassing agreements than partnerships.
infrastructure
a country's physical facilities that support economic activity
Transportation, communication, energy, and finance
Protectionism
national policies designed to restrict international trade, usually with the goal of protecting domestic businesses
tariffs
taxes levied against imports
Quotas
limitations on the amount of specific products that may be imported from certain countries during a given time period
Embargo
a complete ban on international trade of a certain item, or a total halt in trade with a particular nation
World Trade Organization (WTO)
a permanent global institution to promote international trade and to settle international trade disputes
trading bloc
a group of countries that have reduced or even eliminated tariffs, allowing for the free flow of goods among the member nations
common market
a group of countries that have eliminated tariffs and harmonized trading rules to facilitate the free flow of goods among the member nations
North American Free Trade Agreement (NAFTA)
The treaty among the United States, Mexico, and Canada that eliminated trade barriers and investment restrictions over a 15-year period starting in 1994.
European Union (EU)
the world's largest common market, composed of 28 European nations
consumerism
A social movement that focuses on four key consumer rights: (1) the right to be safe, (2) the right to be informed, (3) the right to choose, and (4) the right to be heard.
Market capitalization (market cap)
the market value of a publicly traded company's outstanding shares. It is equal to the share price multiplied by the number of shares outstanding.
Sole Proprietorship
a form of business ownership with a single owner who usually actively manages the company
General Partnership
a partnership in which all partners can take an active role in managing the business and have unlimited liability for any claims against the firm
Corporation
a form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners
articles of incorporation
the document filed with a state government to establish the existence of a new corporation
limited liability
When owners are not personally liable for claims against their firm. Owners with limited liability may lose their investment in the company, but their other personal assets are protected.
Limited Liability Company (LLC)
a form of business ownership that offers both limited liability to its owners and flexible tax treatment
limited partnership
a partnership that includes at least one general partner who actively manages the company and accepts unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability
Limited Liability Partnership (LLP)
a form of partnership in which all partners have the right to participate in management and have limited liability for company debts
Stockholder (shareholder)
an owner of a corporation
institutional investors
an organization that pools contributions from investors, clients, or depositors and uses these funds to buy stocks and other securities
board of directors
the individuals who are elected by stockholders of a corporation to represent their interests
S corporation
a form of corporation that avoids double taxation by having its income taxed as if it were a partnership
nonprofit corporation
a corporation that does not seek to earn a profit and differs in several fundamental respects from C corporations
C Corporation
The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders
aquisition
a corporate restructuring in which one firm buys another
merger
A corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.
horizontal merger
a combination of two firms that are in the same industry
conglomerate merger
a combination of two firms that are in unrelated industries
divestiture
the transfer of total or partial ownership of some of a firm's operations to investors or to another company
franchise agreement
the contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties
Franchise Disclosure Document (FDD)
a detailed description of all aspects of a franchise that the franchisor must provide to the franchisee at least 14 calendar days before the franchise agreement is signed
Entrepreneur
people who risk their time, money, and other resources to start and manage a business
internal locus of control
a deep-seated sense that the individual is personally responsible for what happens in his or her life
external locus of control
a deep-seated sense that forces other than the individual are responsible for what happens in his or her life
Angel Investors
individuals who invest in start-up companies with high growth potential in exchange for a share of ownership
venture capital firms
companies that invest in start-up businesses with high growth potential in exchange for a share of ownership
market niche
A small segment of a market with fewer competitors than the market as a whole. It tend to be quite attractive to small firms.
business plan
a formal document that describes a business concept, outlines core business objectives, and details strategies and timelines for achieving those objectives
Accounting
a system for recognizing, organizing, analyzing, and reporting information about the financial transactions that affect an organization
generaly accepted accounting principles (GAAP)
a set of accounting standards that is used in the preparation of financial statements
finanacial accounting
the branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders
Finanacial Accounting Standards Board ( FASB)
the private board that establishes the generally accepted accounting principles used in the practice of financial accounting
Balance Sheet
a financial statement that reports the financial position of a firm by identifying and reporting the value of the firm's assets, liabilities, and owners' equity - selfie
Accounting Equation
Assets = Liabilities + Owner's Equity
assets
resources owned by a firm
Liabilities
claims that outsiders have against a firm's assets
Owner's Equity
the claims a firm's owners have against their company's assets (often called "stockholders' equity" on balance sheets of corporations)
Income Statement
the financial statement that reports the revenues, expenses, and net income that resulted from a firm's operation over an accounting period - video
revenue
increases in a firm's assets that result from the sale of goods, provision of services, or other activities intended to earn income
expenses
resources that are used up as the result of business operations
Net Income
the difference between the revenue a firm earns and the expenses it incurs in a given time period
horizontal analysis
analysis of financial statements that compares account values reported on these statements over two or more years to identify changes and trends
Managerial Accounting
the branch of accounting that provides reports and analysis to managers to help them make informed business decisions
cost
the value of what is given up in exchange for something
Out-of-pocket cost
a cost that involves the payment of money or other resources
implicit costs
the opportunity cost that arises when a firm uses owner-supplied resources
fixed costs
costs that remain the same when the level of production changes within some relevant range
variable costs
costs that vary directly with the level of production
direct cost
costs that are incurred directly as the result of some specific cost object
indirect costs
costs that are the result of a firm's general operations and are not directly tied to any specific cost object
Activity-based costing (ABC)
a technique to assign product costs based on links between activities that drive costs and the production of specific products
financial capital
the funds a firm uses to acquire its assets and finance its operations
finance
the functional area of business that is concerned with finding the best sources and uses of financial capital
risk-return trade-off
the observation that financial opportunities that offer high rates of return are generally riskier than opportunities that offer lower rates of return
financial ratio analysis
computing ratios that compare values of key accounts listed on a firm's financial statements
liquid asset
an asset that can quickly be converted into cash with little risk of loss
Liquidity ratios
financial ratios that measure the ability of a firm to obtain the cash it needs to pay its short-term debt obligations as they come due
financial leverage
the use of debt in a firm's capital structure
leverage ratio
ratios that measure the extent to which a firm relies on debt financing in its capital structure
Profitability Ratios
ratios that measure the rate of return a firm is earning on various measures of investment
trade credit
spontaneous financing granted by sellers when they deliver goods and services to customers without requiring immediate payment
line of credit
A financial arrangement between a firm and a bank in which the bank pre-approves credit up to a specified limit, provided that the firm maintains an acceptable credit rating
commercial paper
short-term (and usually unsecured) notes issued by large corporations
retained earnings
the part of a firm's net income it reinvests
Covenant
a restriction lenders impose on borrowers as a condition of providing long-term debt financing
equity financing
funds provided by the owners of a company
debt financing
funds provided by lenders (creditors)
Capital Structure
the mix of equity and debt financing a firm uses to meet its permanent financing needs
cash equivalents
safe and highly liquid assets that many firms list with their cash holdings on their balance sheet
US Treasury bills (T-bills)
short-term marketable IOUs issued by the U.S. federal government
time value of money
the principle that a dollar received today is worth more than a dollar received in the future
Certificate of Deposit (CD)
An interest-earning deposit that requires the funds to remain deposited for a fixed term. Withdrawal of the funds before the term expires results in a financial penalty.
present value
the amount of money that, if invested today at a given rate of interest (called the discount rate), would grow to become some future amount in a specified number of time periods
Net Present Value (NPV)
the sum of the present values of expected future cash flows from an investment, minus the cost of that investment
financial markets
markets that transfer funds from savers to borrowers
Depository Institutions
a financial intermediary that obtains funds by accepting checking and savings deposits and then lending those funds to borrowers
credit union
a depository institution that is organized as a cooperative, meaning that it is owned by its depositors
savings and loan association
a depository institution that has traditionally obtained most of its funds by accepting savings deposits, which have been used primarily to make mortgage loans
Federal Reserve Act of 1913
The law that established the Federal Reserve System as the central bank of the United States.
Banking Act of 1933
The law that established the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits. It also prohibited commercial banks from selling insurance or acting as investment banks.
Securities Act of 1933
The first major federal law regulating the securities industry. It requires firms issuing new stock in a public offering to file a registration statement with the SEC.
Securities Exchange Act of 1934
A federal law dealing with securities regulation that established the Securities and Exchange Commission to regulate and oversee the securities industry.
Securities and Exchange Commission
the federal agency with primary responsibility for regulating the securities industry
Financial Services Modernization Act of 1999
an act that overturned the section of the Banking Act of 1933 that prohibited commercial banks from selling insurance or performing the functions of investment banks
common stock
the basic form of ownership in a corporation
capital gain
the return on an asset that results when its market price rises above the price the investor paid for it
preferred stock
a type of stock that gives its holder preference over common stockholders in terms of dividends and claims on assets
bond
a formal debt instrument issued by a corporation or government entity
financial diversification
a strategy of investing in a wide variety of securities in order to reduce risk
mutual fund
an institutional investor that raises funds by selling shares to investors and uses the accumulated funds to buy a portfolio of many different securities
current yield
the amount of interest earned on a bond, expressed as a percentage of the bond's current market price
convertible security
a bond or share of preferred stock that gives its holder the right to exchange it for a stated number of shares of common stock
public offering
a primary market issue in which new securities are offered to any investors who are willing and able to purchase them
intitial public offering (IPO)
the first time a company issues stock that may be bought by the general public
stock (or securities) exchange
an organized venue for trading stocks and other securities that meet its listing requirements
stock index
a statistic that tracks how the prices of a specific set of stocks have changed
Dow Jones Industrial Average (DJIA)
An index that tracks stock prices of 30 large, well-known U.S. corporations.
Standard & Poor's 500
a stock index based on prices of 500 major US corporations in a variety of industries and market sectors
United States-Mexico-Canada Agreement (USMCA)
replace NAFTA
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