ECON 201 Chapter Notes - Chapter 6: Sole Proprietorship, Limited Liability, Retained Earnings

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emeraldherring443

11 Apr 2018

School

Northwestern University

Department

Economics

Course

ECON 201

Professor

David Berger

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Document Summary

Sole proprietorship: a firm owned by a single individual and not organized as a corporation. Partnership: a firm owned jointly by two or more persons and not organized as a corporation. Corporation: legal form of a business that provides its owners with limited liability (they can"t lose more than their investment if their business fails) Assets: anything of value owned by a firm. Owners of a sole proprietorship or a partnership have unlimited liability, which means there is no distinction between personal assets of the owners of the business and the assets of the business. Limited liability: corporations have this, it means that they can never lose more than their investment in the firm. Corporate governance: refers to the way a corporation is structured and how it influences the firm"s behavior. Separation of ownership from control: top managers don"t own a large fraction of stock in the corporation.

Related Questions

Match Column A with Column B

1) Partnership	a) a business owned by one person who is personally liable for all losses
2) Proprietorship	b) An artificial being created by a state
3) Limited partnership	c) two or more persons combine their efforts for a single transaction
4) Corporation	d) created when shareholders elect to be treates as partners for tax purposes
5) legal capacity	e) created by an agreement between two or more persons who agree to share profits and losses
6) buy-and-sell agreement	f) provides for compensation to a deceased or withdrawing owner of a business in return for that owners interest.
7) Subchapter S corporation	g) the ability of an organization to sue or to own property
8) joint venture	h) exists when some partners are treated like shareholders for liability purposes
9) limited liability company	i) tax doctine that allows income to be taxed at the owner level, not the organization level
10) "pass through"	j) owners recieve limited liability and tax treatment as if they were a partnership without filing as a corporation.

Question 1: Answer the following MC questions...

a).

Samuel F.B. Morse patented the (5 points)

A.	telegraph
B.	automobile
C.	audio recorder
D.	radio transmitter

b).

Your friend wants to open a clothing shop. A necessary capital resource is a (5 points)

	A. place to open the shop
	B. knowledgeable fashion manager
	C. license to conduct business
	D.highway billboard for advertising

c).

Jessica is a violinist who believes she can extend her method of learning music to early childhood education. She opens a preschool in her hometown, using her expertise to form an arts-based program. What factor of production is this? (5 points)

	A. Capital
	B. Entrepreneurship
	C. Labor
	D. Land

d).

Your friend hopes to expand her business to multiple locations. It would be best for her to create a (5 points)

	A. limited liability company
	B. sole proprietorship
	C. corporation
	D. partnership

e).

Root and Vine is a gardening collective and local delivery service started by two friends. Their clientele has grown, and they want to expand. The owners like the idea of protecting their personal property, but they want to maintain control of the business. Which type of organization might best suit their growth? (5 points)

	A. Sole proprietorship
	B. Partnership
	C. Limited liability company
	D. Corporation

f).

An oligopoly is a market for a good or service that (5 points)

	A. has few competitive firms
	B. is perfectly competitive
	C. has one buyer
	D. has one seller

g).

The greatest goal in advertising is to convince us (5 points)

	A. "wants" are unnecessary
	B. the firm has the best price
	C. a particular product is a "need"
	D. the product is the same as other firm's products

h).

"Don't be like John, who had no health insurance when he needed emergency surgery. We make health insurance easy and affordable." This advertisement targets your (5 points)

	A. fears
	B. rituals
	C. emotions
	D. social values

i).

Why do monopolies and oligarchies benefit producers over consumers? (5 points)

	A. Companies control price through demand.
	B. Competition is driven by factors other than price.
	C. Demand influences production more when competition is less.
	D. Few producers can generally control prices.

Q21. A nation's raw materials and sources of energy are considered part of its capital resources.
a. true
b. false

Q22. Comparative advantage cannot be applied to activities of individuals.
a. true
b. false

Q23. Which of the following is true of scarcity?
a. it applies to raw materials; manufactured goods are not scarce
b. it affects all countries except the United States and Western Europe
c. it is a basic problem of economics that affects all nations
d. it is a basic problem of economics that affects all nations

Q24. The ability to produce a good or service at a lower opportunity cost than other producers face is known as comparative advantage.
a. true
b. false

Q25. Under the U.S. market system, land and capital goods are owned mainly by
a. the federal government
b. individuals and firms
c. local governments
d. state governments

Q26. A major disadvantage of a corporation is
a. its weakness at raising funds
b. its inability to limit the financial liability of the owners
c. the double taxation of its profits
d. its lack of continuity in the event of a stockholder's death

Q27. The major advantage of the sole proprietorship is its
a. ability to raise funds
b. lack of distinction between business and owner
c. provision of continuity in the business in case of death
d. flexible management

ECON 201 Chapter Notes - Chapter 6: Sole Proprietorship, Limited Liability, Retained Earnings

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