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    Proprietor/Partnership vs. Incorporation

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    1. List and briefly define the three types of business firms.

    2. Define the four types of investments.

    3. Explain how statistics on unemployment are figured.

    4. Define and explain the law of diminishing marginal utility.

    5. Define consumer surplus.

    6. Explain the one thing, regarding the role of the government that separates classical economic theories and Keynesian economic theory.

    7. Explain why the following activities are not included in the measurement of a countrys economic well-being: household production, illegal production, leisure time.

    8. Define each of the following: budget deficit, budget surplus, balanced budget.

    9. Define each of the following: perfect competition, monopoly, monopolistic competition, and oligopoly.

    10. Define the term stagflation.

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    Solution Preview

    1. List and briefly define the three types of business firms.

    There are three types of business firms. These are sole proprietorship, partnership and corporation. In the sole proprietorship, the firm is owned and managed by one person and this person is personally liable for all business debts and obligations of the company.
    The owner and his business are assumed as one entity for tax purposes. So the firm's profits are reported and taxed on the owner's personal tax return. In the partnership two or more persons join in a business or commercial enterprise, share profits, risks and losses according to the terms set forth in their partnership contract. Corporation is a legal business entity created under federal statutes. Because the corporation is a separate entity from its owners, shareholders have no legal liability for its debts. Their liability is limited to the amount of their investment in the firm.

    2. Define the four types of investments.

    There are four main types of investments. These are stocks, bonds, mutual funds, and CDs. A stock is the share of ownership in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits, and purchasing a stock should be thought of as owning a proportional share of the successes and failures of that business. A bond is a certificate of debt issued to raise funds. Bonds typically pay a fixed rate of interest and are repayable at a fixed date. Mutual funds are open-end funds that are not listed for trading on a stock exchange and are issued by companies which use their capital to invest in other companies. Mutual funds sell their own new shares to investors and buy back their old shares upon redemption. Capitalization is not fixed and normally shares are issued as people want them. CDs are instruments issued by a bank or other financial institution that is evidence of a type of savings deposit. These documents ...

    Solution Summary

    Questions on consumer surplus and other topics are posed.