-
sole proprietorship
a firm owned by a single individual and not a corporation.
-
partnership
firm owned jointly by two or more people (not organized as a corporation)
-
corporation
legal form of business that provides owners with protection from losing more than their investment should the business fail
-
asset
anything of value owned by a person or firm
-
limited liability
legal provision that shields owners of a corporation from losing more than they have invested in the firm
-
corporate governance
the way in which a corporation is structured and the effect a corporation;s structure has on the firms behavior
-
separation of ownership from control
where top mgmt rather than shareholders control day to day operations
-
principal agent problem
caused by an agent pursuing his own interest rather than the interests of principal who hired him
-
indirect finance
flow of funds from savers to BORROWERS through financial intermediaries (banks)
-
intermediaries ____
raise funds from savers to lend to firms (& other borrowers)
-
direct finance
flow of funds from savers to firms through financial markets (NYSE)
-
bond
financial security that represents a promise to repay a fixed amt of funds
-
coupon payment
interest on a bond
-
interest rate
cost of borrowing funds (percentage of amt borrowed)
-
stock
financial security that represents partial ownership of a firm
-
dividends
payments by a corporation to its shareholders
-
liability
anything owned by a person or firm
-
income statement
financial statement that sums up a firms revenues, costs,& profit over a period of time
-
accounting profit
firms net income, measured by (revenue-operating exp & taxes paid)
-
explicit cost
involves spending money
-
implicit costs
nonmonetary opportunity cost
-
economic profit
firms revenue-all implicit/explicit cost
-
balance sheet
financial statement that sums up a firms financial position on a particular (usually end of a quarter or year)
-
in the ideal-market framework, the profit maximizing foal of the fime is simply a(n)
extension of the notion of self-interest of individual decision makers
-
_______ are viewed as the ultimate owners of firms. it is assumed that profit maximization will maximize the _________
- private-sector households
- returns to these shareholders
-
choosing the profit maximizing level of output is
NOT guaranteed to lead to efficient allocation of resources
-
situation could be made worse by
self-interested decisions made directly by households
-
_______ is illustrated by the discussion of the principle-agent problem
may be a strong coordination failure between owners and the managers of a firm
-
the potential for disregard of the interests of shareholders can be _________
non-trivial
-
________ exist between higher-level and lower-level mgmt
disconnects
-
while high-level mgmt might epouse a range of lofty goals for the firm, lower-level managers might
be pressured to meet black&white targets (cut corners of lofty goals set my upper mgmt)
-
more generally, manager are operating with
someone else's money in the main
-
how do companies fund lavish parties
CEO/board use shareholder money (english premier league & in large financial companies)
-
it is common for ppl to complain of gvmt spending other ppl's money, its less recognized that a similar threat for
shareholders can come from CEOs
-
intuition from from tax theory
when taxes are imposed on a market, the most inelastic (most price unresponsive) parts of the market bear very little of the burden
-
benefits of the market subsidies tend to accure to the most
inelastic portion of the market, with the most elastic getting little benefits
-
the move to lower marginal tax rates on the rich and capital reflect
not only a view that these individuals are "job creators" for the economy but also that capital is the most elastic component of the factor markets
-
another side of the tax issue is that
permanent subsidies tend to get capitalized in asset values
-
ex- mortgage interest payments for houses is to raise the
value of houses, and the land the house is on, by approx. the capitalized value of the subsidies. in order to remove the tax code, its necessary for homeowners to experience a capital loss on their land--unpopular
-
biggest effect of subsidies may be to
increase the capital value of land, thus encouraging higher rent payments
-
we see an extreme case of capitalization problems in terms of water usage in agricultural parts of CA
-
the land that historically has a right to cheap and abundant water for irrigation is
very expensive and the land is very productive
-
problem is that major cities in CA are
very short for water for their production and household activities
-
both the capibility to be highly productive in terms of agricultural crops would be lost and the price of agricultural land in that area would collapse if one
removed the right the subsidized agricultural to cheap & abundant water
-
Karl Marx
(hammer and rail) claimed that the entire value of output should be attributed to labor
-
in terms of perception, historical emphasis of economics has
changed over time (18th century focused on the contributions to labor)
-
in the mid 20th century there was a switch to
emphasis ton consumer sovereignty (productions was dictated)
-
the recent emphasis on economic growth has shifted the focus to
capital allocation
-
there is growing evidence that markets, individuals, & society are far more
complex that the ideal-market suggests
-
though the ideal market can be validated by the scientific method, there are still
blind sports and salience basis
-
positive normative dichotomy that allows discussion of missing elements, blind spots, and salience biases to be treated as
issues of "false assumptions"
-
those you shout the loudest
are sensing the tide moving against them
-
how do we deal with situations
careful examination of our ways of thinking, strengths & weaknesses
-
2010 UN reports estimated that if the 3000 firms in the world paid for all the ecological costs of their activities their profits would
be reduced by about 1/3rd & would have to face an annual bill of over $2 trillion
-
methodology may be influenced by
an anti-business bias
-
textbook emphasizes the way that firms can raise funds is by
borrowing or floating new stock
-
economist tend to believe that small firms are good engines for
creating new jobs
-
smalls firms tend to be more reliant on
bank loans to finance payroll investment and innovation
-
one of the biggest problems of the great recession was how
as asset prices slumped and the asset side of the bank's balance sheet fell, banks became reluctant to lend
-
banks didnt want to lend to private sector because
- 1. they wanted to hoard safe assets to build up their capital base
- 2. they saw private sector lending as very risky in an environment of falling demands
-
________ played an important role in the failure of credit markets and in turbulence in the market for loanable funds
presence of financial intermediaries
-
its important, as we look for ways to recover, while avoiding long term setbacks, to be aware that
persistent credit market barriers could restrict the ability of small businesses to contribute more to employment growth
|
|
