Thursday, November 11, 2010

Honors Business Economics Chapter 3: 12 November 2010

Current Events:

$600 bllion in budget cuts proposed by National Taxpayer's Union and U.S. Public Interest Research Group: liberal and conservative group agree.

USA Today on August 10 published this front-page chart based on Bureau of Economic Analysis data. It shows that in 2009, the average private-sector employee saw compensation of $61,051 ($50,462 in wages and $10,589 in benefits). Among state- and
local-government workers, the relevant figure was $69,913 ($53,056 in wages and $16,857 in benefits). For federal-civilian employees, the picture was far prettier: Compensation stood at $123,049 ($81,258 in wages and $41,791 in benefits).

These figues show federal employees earning 201 percent of the average private worker’s compensation. Federal benefits equal 395 percent of private-sector benefits.

This chart appeared in the New York Post on September 6 and is based on a Heritage Foundation analysis of figures from the U.S. Labor Department, the Bureau of Labor Statistics, and Haver Analytics. Between December 2007, when the Great
Recession began, and last July, the private sector lost 7,837,000 jobs
(down 6.8 percent). Local-government employment dropped 128,000 positions (minus 0.9 percent), while state governments shed 6,000 positions (less 0.1 percent). Meanwhile, Washington, D.C., boomed. Federal employment zoomed by 198,100 slots as Uncle Sam’s workforce expanded by 10 percent.

Chapter 3

JA Titan
Test your skills running a business in this ultimate business simulation! As CEO, you will match wits in the competitive, technologically advanced industry of the Holo-Generator™.Cf.

Today, we will hear from each of the five departments which will advise us before moving to the next quarter:

Unit Price
Unit Production
Capital Investment
Charitable Giving

Business Organizations, p. 60

Section 1 Forms of Business Organization, p. 61

Most businesses operate in search of profits. Others are organized and operate like a business, although profits are not their primary concern. There are three main forms of business organization. The first is the sole proprietorship, which is a business owned and operated by one person. The second is the partnership, which is a business jointly owned by two or more persons. The third is the corporation, which is recognized as a separate entity having all the rights of an individual. The proprietorship is the most common and most profitable form of business organization. The corporation is the largest and most visible.

One is a sole proprietorship which one individual, the sole proprietor, exercises complete control over the business. Another is a partnership in which two or more individuals combine their efforts and share the profits of the business. Under both business forms, the business is an asset owned by the owner or owner, it has no existence separate from them, and any financial or legal problems encountered by the business are their responsibility. All of the owners’ assets, even those not involved in the business, are at risk. Liability is unlimited.

Chapter Three Spotlight Video

Content Vocabulary

Some Real Examples

Some Final Basics

Why It Matters Today

Corporations and Stocks game


Main types of business

Types reviewed and advantages and disadvantages
In-class assignment: what are the types reviewed, what are their respective advantages and disadvantages?

Sole Proprietorship, p. 62


Forming a Partnership, p. 65

Disadvantages, p. 66

Reading Check


What are the differences between a general partnership and a limited partnership?

Corporations, p. 67

Main Idea

What is a Corporation?

Forming a Corporation

Why It Matters Today

Are corporations people?

This Court decision figured prominently in the Justice Alito: State of the Union "Close-Up" (1/27/10)

Justice Alito saying, "(That's) not true" when Obama criticized the recent Supreme Court decision permitting corporations to buy unlimited ads to influence elections.

Corporate Structure

In Motion Corporate Structure


Advantages, p. 68

Disadvantages, p. 69

Reading Check, p. 70


Why do many business owners prefer corporations over other forms of business organizations?

Entrepreneur, p. 71

Profiles in Economics

Andrea Jung

On Charlie Rose - Andrea Jung (Avon), 2:20

1. p. 71, What changes did Jung make to Avon's marketing strategy?
2. p. 71, What career steps did Jung take that allowed her to move from a degree in English literature to a top management position

Proprietorship - owned and run by a single person.

Partnership - jointly owned by two or more persons.

Corporation - business organization recognized by law as a separate legal entity with all the rights of an individual.


Forms of Business Organizations, Tax and Insurance Issues for Small Business, 9:56

Learn: * How to Choose a Form of Business * How it can maximize your protections and future growth potential * Characteristics of a sole proprietorship, general partnership, corporation, limited liability companies and limited liability partnerships * Whether S Corporation Tax election is right for you * What tax issues are important for small business and why * What insurance coverage every small business owner should consider

Larissa Buerano, Agent, State Farm Insurance

Rajeev Kaul, CPA, PC.

Joyce Moy, Executive Director, Asian American / Asian Research Institute - CUNY

My Own Business: A course on how to start a business

Chapter 3: Business Organizations
Self-Check Quizzes

Crossword Puzzle

Vocabulary eFlashcards
Show Business is the Federal Reserve Bank of Boston's learning activity on economics and the entertainment industry. The goal is to provide an additional tool for teaching and learning about basic economic concepts, with some economic history snuck in.

JA Titan
Test your skills running a business in this ultimate business simulation! As CEO, you will match wits in the competitive, technologically advanced industry of the Holo-Generator™.Cf.

Corporations and Stocks game


A music video from School House Rock on investing and Wall Street.



Ch. 3 Sec. 2 Business Growth and Expansion

Honors Business Economics Chapter 3 Section 2 Business Growth and Expansion
Guide to Reading

Section Preview

Businesses can expand in many different ways. One way is through reinvesting internally generated funds, which can also be paid out to the owners in the form of dividends. Another way is through combinations called mergers. Two kinds of mergers, horizontal mergers and vertical mergers, take place for a number of reasons. Some firms merge to become bigger or more efficient. Others merge to eliminate their rivals or to change corporate identity. Some mergers may result in a conglomerate, or even a multinational if the business has manufacturing or service operations in a number of different countries.

Content Vocabulary


income statement

net income


A more or less permanent decrease in value or price. "More or less permanent" doesn't include temporary, short-term drops in price that are common in many markets. It's only those price declines that reflect a reduction in consumer satisfaction. While all sorts of stuff can depreciate in value, some of the more common ones are capital, real estate, corporate stock, and money. The depreciation of capital results from the rigors of production and affects our economy's ability to produce stuff. A sizable portion of our annual investment is thus needed to replace depreciated capital. The depreciation of a nation's money is seen as an increase in the exchange rate.

cash flow

In class assignment:

What are the two main lessons?
What are the four different levels?
What is financial literary?

horizontal merger

The consolidation under a single ownership of two separately-owned businesses in the same industry. An example of a horizontal merger would be two soft drink companies merging to form a single firm. A horizontal merger should be contrasted with vertical merger--two firms in different stages of the production of one good, such that the output of one business is the input of the other; and conglomerate merger--two firms in totally, completely separate industries.

vertical merger

The consolidation under a single ownership of two separately-owned businesses that have an input-output relationship, in which the output of one firm is the input of another. An example of a vertical merger would be a soft drink company merging with a sugar company to form a single firm. A vertical merger should be contrasted with horizontal merger--two competing firms in the same industry that sell the same products; and conglomerate merger--two firms in totally, completely separate industries.



Academic Vocabulary

Reading Strategy


Companies in the News

Reinvesting for Monster Growth

Growth Through Reinvestment

Main Idea

Economics and You

Estimating Cash Flows

Reinvesting Cash Flows

Reading Check


What is the benefit of reinvesting cash flow in a business?

The Global Economy and You

Know Your Manners

Growth Through Mergers

Main Idea

Economics and You

Types of Mergers

Reasons for Merging



Reading Check


How do conglomerates and multinationals differ?

Case Study

Chapter 3 Section 3 Nonprofit Organizations


Economic organizations, such as schools, medical care facilities, and churches, operate like a business, but on a not-for-profit basis to further the benefit of a cause or the welfare of the members. One example is the cooperative, or co-op, a voluntary association formed to carry on some kind of economic activity or benefit its owners. The labor union is another example. Even government can play a direct role in the economy when it produces goods and services. Also, the government plays an indirect role when it grants money in the form of unemployment payments, Social Security, or welfare in order to give some groups purchasing power that they would not otherwise have. In each case, the benefits of a government action or policy should outweigh its costs.

Guide to Reading

Section Preview

Content Vocabulary
nonprofit organization

credit union
A non-profit depository institution chartered by the National Credit Union Administration that was established to provide members of specific group, such as employees of a company, with low-cost banking services. However, credit unions have expanded their activities and now provide most of the services of traditional banks, including checkable deposits.

Promo piece for Cooperative Credit Union but typical of many organized along these lines, 2:26

labor union

An organization of workers or employees who act jointly to negotiate with their employers over wages, fringe benefits, working conditions, and other facets of employment. The main function of unions is to provide a balance for the market control exerted over labor by big business.

3 Reasons Public Sector Employees are Killing the Economy, 2:56

In-class assignment: what are the three reasons the public sector is killing the economy according to the video?

collective bargaining

The negotiation process between a union and the company that employs the union's members -- usually going by the moniker of management. The purpose of collective bargaining is to find mutual agreement on wages, fringe benefits, workhours, promotion criteria, grievance procedures, and everything else that has to do with employment. The end result of this process is a collective bargaining agreement, which is a formal contract between management and the union. A negotiation process that breaks down without reaching an agreement might lead to a strike, lockout, or mediation.

professional association
chamber of commerce
Better Business Bureau

A group of businesses and organizations in a local community that seek to eliminate unethical business practices and protect consumers. The first Better Business Bureau was established in 1912 in Minnesota. Today, most local communities (read this as cities) throughout North America have Better Business Bureaus. This private response to questionable business practices should be compare with the government response, the Federal Trade Commission.

public utility

The common term for a firm that provides and important (what some deem as essential) good or service primarily in and urban area and often through the use of an extensive distribution network. Common examples of public utilities are those that produce, provide, and/or distribute electricity, natural gas, local telephone services, cable television services, water, garbage collection, and sewage processing. A key feature is that capital requirements mean that public utilities tend to be natural monopolies. One firm can generally provide the services at a lower average cost that two or more firms. For this reason, public utilities tend to be either government owned and operated or heavily regulated by government.

Academic Vocabulary

Reading Strategy

People in the News
Katrina Volunteer Vacation
Ian Hunter, How's Your House, New Orleans Musicians Relief Fund, 4:30

Ian Hunter's "How's Your House" is Downloadable at to help displaced musicians. Song Courtesy of Yep Roc Records, Video by Grewvia.

Community Organizations and Cooperatives
Main Idea
Community Organizations
Reading Check
How Does a Cooperative Work?
Labor, Professional, and Business Organizations
Labor Unions
Professional Associations
Business Associations
Reading Check
How do professional associations help their members?
Direct Role of Government
Indirect Role of Government
Reading Check
Do you think one government role is more important than another? Why?
Business Week News clip
Ocean Spray's Creative Juices


Forming & Operating a Non-Profit Organization : Overview of a Non-Profit Organization, :51

Watch an introduction to non-profit organizations in this free business start up video from a management expert on non-profit organizations.

Bio: Jim Goettler has extensive experience with organizations requiring a wide variety of management and interpersonal skills including special event coordination, volunteer management, and fiscal oversight.
Filmmaker: Daron Stetner

3 Reasons Public Sector Employees are Killing the Economy

As unemployment stubbornly sticks near 10 percent and any sort of economic recovery seems a long way off, think about this: The one part of the economy that's going gangbusters is government work. Indeed, since the Great Recession started in December 2007, over 8 million jobs have been lost in the private sector while the public sector has added at least 100,000 positions.

It's time to recognize that public-sector employment is killing the economy for at least three reasons:

1. They cost too much. As USA Today recently noted, federal employees make on average almost $8,000 more than their private-sector counterparts. When you add in benefits, the gap spreads to about $30,000. State and local government workers make around the same as private-sector counterparts, but their health and retirement packages mean they make significantly more in the end.

2. We can't fire them. The private sector has shed positions in response to slackening demand and the economic downturn. That sort of adjustment is painful but necessary, as it allows the economy to adjust to changing circumstances and workers and employers to move into new activities. Because it is guaranteed certain amounts of tax revenue and has a non-market mind-set, the public sector is largely insulated from such forces and keeps or even adds workers despite changed conditions. The result? We keep paying for things that we don't use, need, or want.

3. They create a permanent lobby for expanded government and higher taxes. Look at California, where teacher unions have spent over $211 million dollars on elections in the past decade. One result is that 40 percent of California's budget must be spent on education, regardless of the number and needs of students. Over the last 10 years, taxpayer contributions to public-sector pension funds has increased by 2000 percent!

Such sort of tax-based gladhanding is just getting started.

For the first time in history, the number of public-sector union employees is greater than those in the private sector, so expect to see even more lobbying for the sorts of mandatory raises and permanent job security that most of us can only dream of.

Because the public sector gets its pay and benefits from tax dollars and public debt, every thing it gets means there's less for the rest of us to save, invest, or pay workers with.

With the federal government and most states already neck-deep in red ink, it's time to cut public-sector pay and payrolls and return more money to the private sector. That will help spur the sort of investment and innovation that will get the economy moving and end the recession far faster than paying more and more money to government workers.

"3 Reasons Public-Sector Employees Are Killing The Economy" is produced by Meredith Bragg and Nick Gillespie, who also hosts.
Ian Hunter, How's Your House, New Orleans Musicians Relief Fund, 4:30

Ian Hunter's "How's Your House" is Downloadable at to help displaced musicians. Song Courtesy of Yep Roc Records, Video by Grewvia.


Figure 3.4 Growth Through Reinvestment, p. 73

Corporations: warning, there is one PG-13 word in this video if you use it for reference or if you prefer not to view; it is not required viewing.

According to this video, what is a corporation? What is it composed of? What sort of characteristics are typical of a corporation?

Money (That's What I Want), 2:36

Barrett Strong recorded this in 1959 for Motown records, it reached number 2 on the R&B charts and 23rd on the US Pop charts making it Motown's first hit. Barrett Strong later went on to become one of Motown's most famous song writers.

Beatles, You Never Give Me Your Money, 3:26

OK Go, This Too Shall Pass, 3:53

HW email to or hand in hard copy.

Friday HW
1. p. 73, Figure 3.4, Growth Through Reinvestment, Which of the items on the income statement represents the real measure of profits for the business?
2. p. 73, What are two things that a business can do with its cash flow?