Demand, Types of Businesses, and Elasticity Flashcards
demand
different quantities of goods that consumers are willing and able to buy at different prices
what is the law of demand?
there is an inverse relationship between price and quantity demand
substitution effect
If the price goes up for a product, consumer buy less of that product and more of another substitute product (and vice versa)
income effect
If the price goes down for a product, the purchasing power increases for consumers -allowing them to purchase more.
law of diminishing marginal utility
utility=satisfaction
as you consume anything, the additional satisfaction that you will receive will eventually start to decrease
Ceteris paribus
“all other things held constant.”
shift
at the same prices, more people are willing and able to purchase that good.
Does price shift the curve?
no
what causes a shift in demand?
- tastes and preferences
- number of consumers
- price of related goods
- income
- future expectations
substitutes
goods used in the place of another
if price of one increases, the demand for the other will increase
complements
two goods that are bought and used together
if the price of one increase, the demand for the other will fall
normal goods
as income increases, demand increases
as income falls, demand falls
inferior goods
as income increases, demand falls
as income falls, demand increases
advantages of sole proprietors
ease of start up ease of management you keep all profits no business taxes Psychological advantages ease of exit
weaknesses of sole proprietors
unlimited liability difficulty in raising financial capital limited size and efficiency limited managerial experience limited life
general partnership
all partners are responsible for management and the financial responsibilities of the partnership. (most common)
limited partnership
at least one partner is not active in the day to day running of the business. They have limited liability.
articles of partnership
contract between partners spelling out the rules of the partnership dividing profit dividing responsibility admitting new partners buying out partners
advantages of partnerships
Ease of establishment Ease of Management: each partner has different things to offer No special business taxes Easier to raise financial capital Larger than sole proprietorship Easier to attract qualified workers
weaknesses of partnerships
Unlimited liability
Limited partner is only responsible for his initial investment. He has limited liability.
Limited Life
Conflict between partners
incorporate
to form a corporation
charter
a document granted by the state giving a corporation the right to do business
stock
shares of ownership in the corporation
stockholders
owners of stock
