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62 Cards in this Set

  • Front
  • Back
Elements of Definition of Partnership
1. Association of agreement or contract
2. No limit on the number of parties
3. Persons can be any entities except as prohibited by state law
Liability of a partner who joins an existing partnership
The partner is generally liable for all subsequently-incurred debts, but is liable for preexisting debts only out of her firm contribution
Partnership Interest
Personal Property - consists of the right to share in the partnership's profits
Creditor Restriction
No creditor of an individual partner may attach partnership property to satisfy an individual debt
Partnership Property
Owned by the partnership entity, not by the partners in common
Limited Partnership
The partnership consists of at least one general partner (GP) and at least one limited partner (LP)
Right to Manage
All partners have equal rights in the management and conduct of business affairs, absent agreement
Right to Profits
Absent agreement, profits and losses are to be shared equally
The Duty of Care
Duty is limited to "refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law"
Partnership Assets include...
All partnership property, and any additional contributions of partners necessary to pay obligations
Three distinct phases of the UPA approach
Dissolution, Winding up, and Termination
LLP member liability
Liable for their own torts and for the torts of those they supervise
Formation of Limited Liability Partnerships (LLPs)
Must be formed by filing appropriate documents with the Secretary of State
Joint stock companies
Organized under a contract normally called the articles of association
Persons Liable for Stock Sold Below Par or Authorized Price
1. The board who allowed the sale
2. The buyer who paid too little
3. Transferees who know the buyer paid too little and who pay too little themselves
Redeemable
Must be purchased by corporation under specific circumstances if shareholder requests
Bonds
Debt secured by corporate property
Factors Necessary to Overcome Presumption of Board Discretion in Issuing Dividends
1. The board acted in bad faith
2. Funds to pay dividends existed in a legally available source
Proper payment of dividends
1. Only out of legally available funds
2. Only in accordance with applicable preferences
When Dividends Cannot be Distributed
1. If it would make the corporation insolvent, or
2. If the distribution exceeds the surplus of the corporation
Common Law Rights
General Rule -- shareholders may inspect at proper times in proper places for proper purposes
Proxies
Granting others the right to cast their votes at shareholder meetings
Types of Economic Systems
1. Command Economic System (Communism or Socialism)
2. Market (Free-enterprise) Economic System
Characteristics of Free-Market Economy
1. Interdependent relationship between individuals and business firms
2. Production depends on preferences of individuals with ability to pay for goods and services
3. Production depends on availability of economic resources, level of technology, and how business firms choose to use them
4. Production depends on sale price being at least equal to production cost
Causes for Change in Aggregate Demand
1. Size of market
2. Income or wealth of market participants
3. Preferences of market participants
4. Change in prices of other goods and services
Principle of Increasing Cost
Production costs increase in the short-run as the quantity produced increases because new resources are not used as efficiently as those previously used.
What are the variables that change aggregate supply?
Changes in:
1. Number of providers
2. Cost of inputs
3. Government taxation or subsidization
4. Technological advances
What is the slope of a normal supply curve?
A normal supply curve has a positive slope - the higher price the greater the quantity that will be supplied.
Results of a Change in Market Demand (only) on Equilibrium
1. Increase in market demand = Demand curve shifts up and to the right; Decrease in market demand = Demand curve shifts down and to the left.
2. Increase in market demand w/no change in supply = Increase in both equilibrium price and equilibrium quantity.
3. Decrease in market demand w/no change in supply = Decrease in both equilibrium price and equilibrium quantity.
Governmental Influences on Equilibrium Supply
1. Taxation increases the cost and shifts the market supply curve up and to the left.
2. Subsidization decreases the cost and shifts the market supply curve down and to the right.
Equilibrium Price
1. Price at which the quantity of a commodity supplied is equal to the quantity of that commodity demanded.
2. The intersection of the market demand and supply curves.
Results of a Change in Market Supply (only) on Equilibrium
1. Increase in market supply = Supply curve shifts down and to the right; Decrease in market supply = Supply curve shifts up and to the left.
2. Increase in market supply w/no change in demand = Decrease in equilibrium price and increase in equilibrium quantity.
3. Decrease in market supply w/no change in demand = Increase in equilibrium price and a decrease in equilibrium quantity.
Elasticity
Measures the percentage change in a market factor as a result of a given percentage change in another market factor
Elasticity of Demand
The percentage change in quantity of a commodity demanded as a result of a given percentage change in the price of the commodity
Elasticity of Supply
The percentage change in the quantity of a commodity supplied as a result of a given percentage change in the price of the commodity
What does "Demand is Elastic" mean?
If demand is elastic, the percentage change in demand is greater than the percentage change in price, the elasticity coefficient is greater than 1 and total revenue will change in the opposite direction as the change in price.
Measures of Elasticity
1. Elasticity of Demand
2. Elasticity of Supply
3. Income Elasticity of Demand
4. Cross Elasticity of Demand
Indifference Curve
Various quantities of two commodities that give an individual the same total utility as plotted on a graph.
Utility
Satisfaction derived from the acquisition or use of a commodity
Law of Diminishing Marginal Utility
Decreasing utility (satisfaction) is derived from each additional (marginal) unit of a commodity acquired.
Marginal Utility
The utility derived from each (additional) marginal unit (i.e., from the last unit acquired).
Examples of Variable Costs
1. Raw materials
2. Most labor
3. Electricity
Economies of Scale (also Increasing Return to Scale)
The long-run average cost curve is decreasing reflecting that the quantity of output is increasing in greater proportion than the increase in inputs, largely due to specialization of labor and equipment.
Law of Diminishing Returns
The point at which the quantity of variable inputs begins to overwhelm the fixed factors resulting in inefficiencies and diminishing return on marginal units of variable inputs.
What is the shape of the demand curve for a firm in Perfect Competition?
The demand curve faced by a single firm in a perfectly competitive market is a straight horizontal line originating at the price set by the market (of all firms).
How are long-run profits determined for a firm in perfect competition?
There are no long-run profits possible in a perfectly competitive market. If profits are made in the short-run, more firms will enter the market and increase supply, thus decreasing market price until all firms just breakeven.
Characteristics of Perfect Competition
1. A large number of independent buyers and sellers, each of which is too small to separately affect the price of a commodity
2. All firms sell homogeneous products or services
3. Firms can enter or leave the market easily
4. Resources are completely mobile
Buyers and sellers have perfect information
Government does not set prices.
In the long-run, how may a monopoly firm increase its profits?
A monopoly firm may increase its profits in two ways:
1. Reduce cost by changing the size if its operations
2. Increase demand through advertising, promotion, etc.
Typical Reasons Monopolies Exist
1. Control of raw materials or processes
2. Government granted franchise (i.e., exclusive right)
3. Increasing return to scale (i.e., natural monopolies)
Characteristics of Monopolistic Competition
1. A large number of sellers
2. Firms sell a differentiated product or service (similar but not identical), for which there are close substitutes
3. Firms can enter or leave the market easily
How are long-run profits determined for a firm in Monopolistic Competition?
There are no long-run profits possible in a monopolistic competition. If profits are made in the short-run, more firms will enter the market and lower the demand for each firm until each just breaks even
Distinguish between Overt Collusion and Tacit Collusion
1. Overt Collusion = Firms conspire to set output, price or profit; illegal in the U.S.
2. Tacit Collusion = Firms follow price charged by the price leader in the market; not illegal in the U.S.
Characteristics of Oligopoly
1. A few sellers
2. Firms sell either a homogeneous product (standardized oligopoly) or a differentiated product (differentiated oligopoly)
3. Restricted entry into the market
Demand Curve Shift
A demand curve shifts when demand variables other than price change.
Price elasticity of demand
Percentage change in quantity demanded/Percentage change in price
Interpretation of the demand elasticity coefficient
If the elasticity of demand is greater than 1, demand is said to be elastic (sensitive to price changes). If elasticity is less than 1, demand is said to be inelastic (not sensitive to price changes).
Cross-elasticity of demand
Measures the change in demand for a good when the price of a competing product is changed (eg Coke & Pepsi) Formula: Percentage change in the quantity demanded of Product X/Percentage change in the Price of Product Y
Cross-elasticity of demand and the Relationship between goods
Coefficent of cross-elasticity is positive, Goods are substitutes.
Coefficent is negative, Goods are complements.
Coefficient is zero, Goods are unrelated.
Classical Economic Theory
Theory holds that market equilibrium will eventually result in full employment over the long run without gov't intervention. Does not support the use of fiscal policy to stimulate the economy.
Keynesian Theory
Theory holds that the economy does not necessarily move towards full employment on its own. It focuses on the use of fiscal policy (change in taxes & gov't spending) to stimulate the economy.
Monetarist Theory
Theory holds that fiscal policy is too crude a tool for control of the economy. If focuses on the use of monetary policy to control economic growth.
Supply-Side Theory
Theory holds that bolstering an economy's ability to supply more goods is the most effective way to stimulate growth. A decrease in taxes (esp for bus's & individuals with high income) increases employment, savings, & investments & is an effective way to stimulate the economy.