Salerno's Classroom Celebrates America!

Eco Chapt 9

AP Government Summer Assignment
AP Chapters 1,2
AP Chapter 3
AP Chapter 4
AP Chapter 5
AP Chapter 6
AP Chapter 7
AP Chapter 8
AP Chapter 9
AP Chapter 10
AP Chapter 11
AP Chapter 12
AP Chapter 13
AP Chapter 14
AP Chapter 15
AP Chapter 16
U.S. History Chapters 1, 2, 3
U.S. History Chapter 4
U.S. History Chapter 5
U.S. History Chapter 6
U.S. History Chapter 7
U.S. History Chapter 8
U.S. History Chapter 9
U.S. History Chapter 10
U.S. History Chapter 11
U.S. History Chapter 12
U.S. History Chapter 13
U.S. History Chapter 14
U.S. History Chapters 16,17,18
U.S. History Chapters 19,20,21
U.S. History Chapters 22,23
U.S. History Chapters 24,25
U.S. History Chapters 26,27
U.S. History Chapters 28,29,30
U.S. History Chapter 31
U.S. History Chapter 32
U.S. History Chapter 33
US Government Chapters 1,2
US Government Chapter 3
US Government Chapters 10,11,12
US Government Chapters 13,14
US Government Chapter 18
US Govt Chapters 19,20,21
Remembering 9/11/01
The Civil Rights Movement
Economics Chapters 1,2,3
Eco Chapt 9
Eco Chapters 6,7,8
Eco Chapt 13
Eco Chapter 15
Eco Chapt 21

The World of Business

Chapter 9



Business(firm) - when the three factors of production are brought together

(natural resources, labor, capital)



                                               Different Types Of Businesses


I.                 Sole Proprietorship - business type where one person owns all and calls all the shots.  Eg. stores, barbershops, luncheonettes


advantage - easy beginning; less restrictions; pride; profits; relationships; taxes.


disadvantage - limited capital; limited managerial ability; full burden of losses; personal liability;

not permanent.



II.                Partnerships

Limited Partnership- People who invest in business with their only responsibility being their investment.  Their return is not as a full partner. Eg. investments


General Partnerships- Each partner is liable for their firm's debts


Advantage - Same as Proprietorship but add Greater Capital and borrowing power; Greater managerial ability.


Dis-advantage- same as Proprietorship but add equal liability for debts; disagreements; selling interest, division of profits


III  Corporations - owned by stockholders.  The Corporation is a separate legal person.


Each State requires certain procedures and the corporation is filed by the Secretary of State in each individual State


To create a corporation, articles of incorporation must be drawn up.

1) corporation's name and purpose

2) number of directors

3) names and addresses of board        members

4) the amount of stock issued

5) additional information when needed




A part of corporate income paid to owners of a corporation’s stock.


- stockholders elect a board of directors

whose function is to supervise affairs and dictate procedure.




advantages of incorporating

1) limited liability for stockholders

2) continuous in existence

3) greater capital can be generated

4) easy transfer of stock.




disadvantages -


1) Tougher to begin (filing)


2) governmental

control and regulation


3) Federal State and Tax law


4) double taxation of profits and shareholders.



Note: In the US

Proprietorships-greatest number today


Corporations greatest

volume of business



The Four major sources of money for capital formation


1) sale of stock

(the majority share holders sell off)


2)                borrowing -   promissory note

1) corporate paper

2) bonds


3)                reinvestment - put money back into business by hiring new employees, increasing efficiency, new equipment


4)                subsidies and gifts - government gives gifts to corporations for performing an important task




The combining of one company with another company it buys


19th Century into 20th Century


Andrew Carnegie

US Steel


Vertical Integration



*Sale of polished steel*


*Steel Ingot Production(columns)*


*Blast Furnace Conversion*


*Natural Resources*

(lime, coke, iron-ore)


Each had been a separate process in the steel-making industry. Carnegie bought land rich with the natural resources and built a steel making plant in Pittsburg.  He bought the railroads which linked the resources to the blast furnace.

Eventually, he merged with the ingot production and sales.

Result:                  He controlled every aspect of the steel making industry including transportation.  In doing so he eliminated waste and destroyed all competition.

Steel was produced and distributed at the lowest possible cost.



Horizontal Integration


John D. Rockefeller


*Gas/Oil Sales*


*Distribution Outlets*



------Oil Refining Industry-------        

   ABC                  DEF            Standard Oil       GHI            JKL  

Refinery  Refining      Refinery    Refining   Refinery



*Drilling for Crude*



Rockefeller would not drill for oil(risky business), he practiced horizontal integration, controlling  

the refining aspect of the oil industry.  (Standard Oil Trust)

Once stabilized and controlled, he then practiced vertical integration with the buying of railroads.


Standard Oil Today

(after the break-up)

Exxon, Mobil, Shell, Texaco








J. P. Morgan



Morgan was the master of the conglomerate, different companies merging and controlled by a single,

Dominate company.

Morgan purchased

*US Steel from Carnegie,

*Purchased most of the northern railroad lines (Northern Securities)


*Banking and Investment

House of Morgan – (Chase Manhattan)


Today’s version:




-PepsiCo Wines and Spirits



-Pizza Hut

-Taco Bell

-Redux Realty



Yes, they are all owned by PepsiCo,

but they each have their own Board of Directors and operate independently


They are not openly reducing there competition  (Monopoly)



Why do businesses fail?


1) lack of capital - very important to buy on credit and to buy right


2) lack of good sense- proprietors should not over extend themselves.  Be able to service clients or customers properly


3) marketable item-  you can't sell snow balls during the winter.

Sometimes business can be seasonal.

Eg. Playland or beach clubs



4) location -                    Main Street USA McDonalds; Burger King; Wendy's

Taco Bell

5) changes in prices - you start a business basing all your costs on present day prices.  They may change!

Also, your product may devalue on the open market

6) Physical Disasters - Acts of God can put you out of business.  Seasonal business usually depends upon the weather.



How do you prevent the above from ruining your business?


1) insurance -limiting your liability

2) save money                                    - use profits to invest in capital goods

3) expand markets -                                               target a good cross-section of the market


4) diversify-                                        get involved in other businesses


5) gain experience -                                                         learn from your mistakes and repeat or improve your successes


6) market awareness-                                                       know what is going on with your customers and competition









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