Sole Proprietorships

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  • Sole 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
  • Easiest form of business to start
  • Management is relatively simple
  • Owner can keep the profits without having to share them with other owners
  • Proprietorship does not have to pay separate business income taxes because the business is not recognized as a separate legal entity
  • Psychological satisfaction of being their own boss
  • Easy to get out of business
  • Main disadvantage is that the business has unlimited liability – requirement that an owner is personally and fully responsible for all losses and debts of the business
  • Difficulty of raising financial capital to start the business
  • Inventory – stock of finished goods and parts held in reserve
  • May not hire enough personnel or stock enough inventory to operate the business efficiently
  • Has limited managerial experience – need to hire advisors
  • Difficulty of attracting qualified employees, no benefits
  • Sole proprietorship is limited life – situation in which a firm ceases to exist when an owner dies, quits, or sells the business


  • 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 of debts
  • Relatively easy to start
  • Ease of management; each owner brings a distinctive talent that help overall condition of the business
  • Lack of special taxes on a partnership
  • Attract financial capital more easily than proprietorships
  • Partnerships is the more efficient operations that come with their slightly larger size
  • Partnerships often find it easier to attract top talent than proprietorships
  • Main disadvantage of the general partnership is that each partner is fully responsible for the acts of all other partners; limited partner’s responsibility for the debts of the business is limited by the size of his or her investment in the firm
  • Partnership has limited life
  • Potential for conflict between partners


  • Corporation – form of business organization recognized by law as a separate legal entity
  • Very formal and legal arrangement
  • Charter – written government approval to establish a corporation
  • Stock – certificate of ownership in a corporation
  • Stockholders – people who own a share or shares of stock in a corporation
  • Dividend – check that transfers a portion of the company profits to stock holders, usually quarterly
  • Common stock – most frequently used form of corporate ownership with one vote per share for stockholders – vote select board members
  • Preferred stock – form of corporate ownership without vote, in which stockholders get their investments back before common stockholders
  • Main advantage is the ease of raising financial capital
  • 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
  • Provides limited liability for its owners
  • The directors of the corporation can hire professional managers to run the firm
  • Unlimited life, corporation continues to exist even when ownership changes
  • The ease of transferring ownership of the corporation
  • Disadvantage: double taxation of corporate profits – taxation of dividends both as corporate profit and as personal income
  • Corporate structure is the difficulty and expense of getting a charter
  • Corporation is that the owners, or shareholders, have little voice in how the business is run
  • Corporations are subject to more government regulation than other forms of business

Chapter 3.3 – Nonprofit organizations

  • Nonprofit organizations – economic organization that operates like a business but does not seek financial gain

Community organizations and cooperatives

  • Cooperative or co-op – nonprofit association performing economic activity for the benefit of its members
  • Consumer cooperative – housing cooperatives, discount price clubs, bulk foods store
  • Service cooperatives – credit unions, insurance companies, babysitting services
  • Producer cooperatives – farmers marketing cooperatives
  • Credit union – nonprofit service cooperative that accepts deposits, make loans, and provides other financial services

Labor, professional, and business organizations

  • 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, working conditions, and benefits
  • 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


  • Government supplies a good or service that competes with private businesses
  • US postal service, FDIC are good examples
  • State and local governments also play a direct role in the economy
  • Public utility – company providing an essential service such as water or electricity to consumers

Chapter 8.2 – wages and labor disputes

Wage Determination

  • Wage rate – prevailing pay scale for work performed in an occupation
  • Unskilled labor – workers not trained to operate specialized machines and equipment
  • Semiskilled labor – workers who operate machines that require a minimum amount of training
  • Skilled labor – workers who are trained to operate complex equipment and require little supervision
  • Professional labor – workers with high level of training, education, and managerial skills
  • Market theory of wage determination – explanation of wage rates relying on theory of supply and demand
  • Equilibrium wage rate – wage rate leaving neither a surplus nor a shortage in the market
  • Theory of negotiated wages – explanation of wage rates based on the bargaining strength of organized labor
  • Seniority – length of time a person has been on a job
  • Signaling theory – theory that employers are willing to pay more for people with certificates, diplomas, and other indicators of superior ability
Information Technology: Database Organization

Chapter 12.3 – poverty and the distribution of income


  • Poverty threshold – annual dollar income used to determine the number of people in poverty
  • Social security administration help minimize the cost of getting the right amount of nutrient
  • Poverty guidelines – administrative guidelines used to determine eligibility for certain federal programs
  • Lorenz curve – graph showing how the actual distribution of income differs from an equal distribution

Reasons for income inequality

  • Difference in individuals’ educational levels
  • Distribution of wealth is unequal; wealth has a dramatic impact on people’s ability to earn income
  • Law and tax changes, decrease taxes for generally all Americans
  • Union membership has fallen, adding to the growing income gap
  • Economy currently are converting from goods production to service production, wages are generally lower wages
  • Degree of monopoly power
  • Discrimination also affects the distribution of income
  • Growing income gap are also due to the changing structure of American family

Antipoverty programs

  • Welfare – government or private agency programs that provide general economic and social assistance to needy individuals
  • Programs such as TANF (temporary assistance for needy families) and SSI (supplemental security income) assist individuals in need. But federal government took over to assure more uniform coverage
  • Food stamps – government issued coupons that can be exchanged for food
  • Medicaid – joint federal-state medical insurance program for low income people
  • State developed a variety of social service programs such as family planning, job training, child welfare, and day care
  • Earned income tax credit (EITC) – federal tax credits and cash payments for low income workers
  • Enterprise zones – area free of tax laws and other operating restrictions
  • Workfare – program requiring welfare recipients to work in exchange for benefits
  • Negative income tax – tax system that would make cash payments to individuals with incomes below certain levels
  • Negative income tax – tax system that would make cash payments to individuals with incomes below a certain level
  • Has been and continue to be one of the most difficult problem to solve

Chapter 6.3 – social goals and market efficiency

Distorting market outcomes

  • Price ceiling – highest legal price that can be charged for a product
  • Minimum wage – lowest legal wage that can be paid to most workers
  • Price floor – lowest legal price that can be paid for a product
  • Minimum wage pro: raises poor people’s incomes and provides a small measure of equity
  • Minimum wage con: increase unemployment due to decrease of hiring, minimum wage is lower than the lowest wages paid in many areas

Agricultural price supports

  • Target price – price floor for agricultural products set by the government to stabilize farm income
  • Nonrecourse loan – agricultural loan that carries no penalty or further obligation if it is not repaid
  • The surplus of food made them reconsider if they should continue to support the program
  • Deficiency payment – cash payment making up the difference between the market price and the target price
  • Federal agricultural improvement and reform act – lasted until 2007
  • American agriculture is dependent on subsidies and price supports, opinions varies on perspective

Automation and employment in the 21st century article

  • Only a small percentage of occupations can be fully automated by adapting current technologies, but some work activities of almost all occupations could be automated
  • Automation will not happen overnight, but will likely take decades
  • Automation can boost productivity and help close a GDP growth gap resulting from declining growth rates of working age populations

Work in the future will fall into these 4 categories

  • Social and organizational reconfiguration
  • All-inclusive global talent market
  • A truly connected world
  • Exponential technology change
  • Human-automation collaboration

Main forces that currently change the labor force

  • Technology
  • Globalization

Profit = revenue – costs

Breakeven point = total revenue > or = total cost

Profit maximum point: marginal cost = marginal revenue

Prices in free enterprise

  • Send signals to producers and consumers
  • Allocate resources between markets
Work reimagined

Type of work

·         Work via platforms, projects, gigs, freelancing, contest, contracts and tours of duty


·         Traditional delivery

Uber empowered

Type of work

·         Work via platforms, projects, gigs, freelancing, contests, contracts, and tours of duty


·         Delivered by new technologies such as cloud, on-demand artifical intelligence, extreme personalization and personal devices

Current state

Type of work

·         Full time employment, with variation such as contracts, part-time, and flexible work


·         Traditional delivery

Today, but turbo charged

Type of work

·         Full time employment


Cite this article as: William Anderson (Schoolworkhelper Editorial Team), "Economics Unit 2 – Business Organization," in SchoolWorkHelper, 2019,
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