IE 31

• Economics


  The study of the way in which mankind organizes itself to tackle the basic problems of scarcity
• Economic System


  Process that involves the production, distribution, and consumption of goods and services by organizing labor, capital & natural resources between entities in a particular society
• Types of Economic Systems

  • Planned / Command Economy
  • Market Economy
  • Mixed Economy
• Planned / Command Economy

  • Controlled by the government
  • Places people first, not profits first
  • Economic equality
  • Prices are revenue-based, not market-based
• Market Economy

  • Free of all government control
  • Private ownership of production, distribution, and trade
  • Demand is the sole driver of production and pricing
• Mixed Economy

  • Hybrid between command and market economic systems
  • Can be more command or more mixed depending on the government in question
• Basic Economic Process


  1. Shows the cycle or flow of goods and services happening in any economic system

  2. People render service or make goods and use the products of others in return
• Raw materials needed in the modern economy

  Extractive or “primary raw material” industries include agriculture, mining, logging, hunting, and fishing
• Manufacturing of raw materials

  1. Manufacturing industries transform materials or parts into products of greater usefulness to others

  2. Semi-manufactured goods pass from producers to producers for further processing

  3. Finished goods are sold to the ultimate consumers
• Distribution of goods


  Distribution industries facilitate the passage of goods from crude raw materials through many stages of processing and manufacture to the ultimate consumers
• Rendering of services

  Service industries provide domestic, financial, professional, mechanical, general public, and government services
• The need for organizing economic life arises from the fact that man’s needs and wants are unlimited, but means of satisfying those are scarce
• The material basis of daily living is a cooperative cycle of making and using goods and services
• All four fields of economic activities are mutually dependent parts of the larger whole, the national economy
• There is NO such thing as a self-sustaining economy, hence the need for international exchange of goods and services
• A country participates in the international exchange of goods and services to carry the cooperative cycle beyond its borders by engaging with other nations
• Enterprise Ownership

  1. Enables the owner to dictate the functioning of the business and its operations

  2. Involves the title to and possession of the assets of the enterprise, the power to determine the policies of operation, and the right to receive and dispose of the proceeds
• Ways to acquire business ownership

  • Initiating a business
  • Purchasing an existing company
  • Franchising
• Types of Ownership

  • Private Ownership
• Ownership of the assets of the enterprise


  Includes the power to determine the policies of operation and the right to receive and dispose of the proceeds
• Three ways business ownership can be acquired

  • Initiating a business
  • Purchasing an existing company
  • Franchising
• Types of Ownership

  • Private Ownership
  • Public Ownership
  • Mixed Business Units
• Private Ownership


  Owned by a private individual or organization, rather than by the state or a public body
• Public Ownership

  Right of disposal by a public body representing society, government, or state power
• Mixed Business Units

  Combination of both public and private ownership
• Forms of Public Enterprise

  • Public Corporation
  • Non-incorporated Public Corporation
• Forms of Private Enterprise

  • Sole Proprietorship
  • Partnership
• Sole Proprietorship


  Owned by one person with unlimited liability
• Partnership


  Association of two or more persons as co-owners for profit
• General Partnership


  • At least one general partner who manages the business and is equally liable for its debts
• Limited Partnership


  • At least one general partner and one or more limited partners with liabilities limited to their investments
• General Characteristics of a Partnership

  • Pass-Through Taxation
  • Partners' Equity Accounts
  • Mutual Agency
• Forms of Partnership based on Involvement

  • Silent Partner
  • Secret Partner
  • Dormant Partner
  • Nominal Partner
• Types of Partners in a business

  • Secret Partner
  • Dormant Partner
  • Nominal Partner
• In a partnership, there is a co-ownership of contributed assets where when one partner contributes an asset to the business, all partners jointly own it to some extent
• Corporation


  • Structured on a legal basis with stock/shareholders, a board of directors (BOD), and officers chosen to manage the operation of the company as a separate entity from the owners themselves
• Responsibilities of the Board of Directors (BOD)

  Managing and exercising the rights and responsibilities of the corporation, setting corporate policy and strategy, electing officers to manage the corporation on a day-to-day basis
• Types of Corporations

  • Private Corporations
  • Public Corporations
  • Closed Corporations
  • Open Corporations
  • Municipal Corporations
  • Domestic Corporations
  • Foreign Corporations
  • Alien Corporations
  • Nonprofit Corporations
  • Single-Individual Corporations
• Corporations have limited liability protection, freely transferable shares, and corporate tax treatment where it pays taxes separate and apart from its owners; owners pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends
• C corporations have potential double-tax consequences, while S corporations can mitigate this tax issue