© South-Western Educational Publishing GOALS LESSON 1.3 THE BUSINESS ENVIRONMENT Relate current economic conditions to consumer expenditures Compare

© South-Western Educational Publishing

GOALSGOALS

LESSON 1.3THE BUSINESS ENVIRONMENT

Relate current economic conditions to consumer expenditures

Compare the legal structures for a business


Economic Systems

An economic system refers to the way a country uses resources to produce goods and servicesCommand economy

The government owns most of the resources and commands individuals and businesses to product specific items or perform specific jobs North Korea, Cuba


Economic System

Market economyIndividuals and businesses determine

the products they will produce and sell Purpose of business is to earn a profit Business owner decides what products

to sell


Market Economies and Scarcity

Driven by scarcity Resources are consumed when a product

is made As resources are used, they become

harder to find, making them more valuable Scarcity describes the situation where

consumers always want more resources than are available


Market Economy and Supply

SupplyThe law of supply states that

producers are willing to sell more of a product at a higher price than a lower price Ex: Page 17


Market Economy and Demand

The law of demand states that consumers will demand more of a product at a lower price compared to a higher priceEx. Page 17


Market Economy and Equilibrium

The equilibrium price for a product is the price at which the quantity supplied exactly equals the quantity demanded


Economic Conditions

Customers’ confidence in the economy determines the Amount of money they spend, and Types of products they buy

To survive an economic downturn, retailers should Offer products customers need, and Cut back on items that are more expensive

and not necessary


Legal Structure

4 Main Types of Legal Structures1. Sole proprietorship

2. Partnership

3. Corporation

4. Franchise


Legal Structures

Sole ProprietorshipSimplest form of businessMost popular form of business


1. Sole Proprietorship

AdvantagesAdvantagesEasiest and least expensive

structure to set up and dissolve

Profits and losses reported on personal income tax form

Owner makes all business decisions

Flexible—able to respond quickly to market changes

DisadvantagesDisadvantagesAutomatically dissolves

when owner diesOwner has unlimited

personal responsibility for business debts

Growth is limited by personal commitment of owner

Funding is limited to owner’s ability to raise funds


Legal Structures

General Partnership Formed when two or more individuals are

co-owners of a business operated to earn a profit

Before you begin operating should form a partnership agreement Sets rules for partners and describes actions

partners will take (page 20)


2. Partnership

AdvantagesAdvantagesEasy and inexpensive to set

up and dissolveProfits and losses reported

on personal income tax returns of each of the general partners

General partners make all business decisions

Flexible—able to respond quickly to market changes

DisadvantagesDisadvantagesDissolves when a partner

dies or withdraws unless specified differently

Partners have unlimited personal responsibility for business debts

Potential for disagreement between partners

Any partner can commit the business to unrealistic obligations


Legal Structures

CorporationMost complicated legal structureLegal entity separate of individualOwned by share holdersS-Corporation

Has fewer than 35 share holders


3. Corporation

AdvantagesAdvantagesBusiness is a separate legal

entityExistence of business is not

affected by the death of individual shareholders

Shareholders are not personally liable for business debt

Hired managers make business decisions

DisadvantagesDisadvantagesMost difficult and expensive

structure to set up and dissolve

Business is affected by government regulation

Extensive record keeping required

Not flexible—unable to respond quickly to market changes


Legal Structures

FranchiseGrants an individual the right to

market a company’s goods or services in a specific territory

Franchise license costs on average between $12,000 and $25,000


4. Franchise

AdvantagesAdvantagesThe business idea has been

proven to workFranchisee receives

assistance from the corporation

Corporation continues to research and develop new products and methods

DisadvantagesDisadvantagesThe business idea is not

original for the business owner

You must follow the procedures determined by the corporation

You are not free to develop your business by changing your products or methods

Documents

© South-Western Educational Publishing GOALS LESSON 1.3 THE BUSINESS ENVIRONMENT Relate current economic conditions to consumer expenditures Compare