Economics iGCSE The private firm as producer and employer

1. Economics iGCSEThe private firm as producer and employer Types of business organisation Effect of different business structures Determinants of demand for f.o.p Costs - total, average & variable costs

2. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71 Starter questions: What is the point of having businesses in the economy? What are the people called that organise a business? Can you think of 3 different types of businesses .. What do you think are/is the main difference between these different types of business? iGCSE Economics/Yr10/SH/25-10 to 03-12

3. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71 WELCOME TO MODULE 4:4 - The Private Firm as a Producer & Employer Firstly we will examine the different types of businesses Different types of businesses are recognised by how they are: Controlled & managed day-to-day Owned Financed - who provides the money to set up and run the business? Pin down the definitions for different businesses What are the advantages & disadvantages of different types of businesses How a change in the structure of a business affects it’s ability to make profit iGCSE Economics/Yr10/SH/25-10 to 03-12

4. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-65 Monday 8th Starter question: What are the advantages and disadvantages of sole trader businesses? iGCSE Economics/Yr10/SH/25-10 to 03-12

5. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-65 What sorts of businesses exist? Large Multi National Company Different people can own, manage & work Large National Company Cooperatives Complexity of Business Structure Many people own, manage & work Partnerships Group of people own, manage & work Sole Trader One person owns, manages & works 2-20 10’s - 1000’s 100,000’s 1 How many employees

6. Large Multi National Company • Worker or consumer owned & managed • Exists to provide benefits to members ONLY • 1 member = 1 vote (doesn’t matter how much money invested) • Limited liability • Anyone can be a member if employed by the co-op e.g. shared buildings (e.g flats), farmers, retail-shops, banks, funeral-director Large National Company Cooperatives • Sells shares to investors (OWNERS) who are not responsible for running the business • Shareholders elect a Board of Directors - who are responsible for running/managing the company • Who can buy shares? Unconstrained = public Ltd Company. Constrained by current s’holders = private Ltd Company • Shareholders get dividends (share of profit) and share of equity in return for their money investment e.g. The largest are PetroChina, Exxon Mobil, Microsoft, Apple, Walmart, ICBC, China Mobile • Legal agreement between individuals to own & manage together • Share costs, profit and risk (unlimited liability) • Shared skills & decision making • More money to invest e.g. Dr, lawyers, accountants, vets Partnerships • His own boss - make all the decisions • Receives all profit (or loss) • High personal investment (time & money) - works hard • Small revenues - limited money to invest • E.g. carpenter, mechanic, newsagent, financial adviser Sole Trader Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-65 Public (‘nationalised’) corporations: • Day to day running according to central/local gov’t policy - legally separate status; appointed Board of Director; financed by taxes • To ensure access to ‘strategic’ g&s for all consumers at fair price and standard of quality • E.g. public transport (aviation), utilities, banking (B of E), postal, oil, steel, BBC • May be run for profit, as a trust or non-profit. Different people can own, manage & work Complexity of Business Structure Many people own, manage & work Group of people own, manage & work One person owns, manages & works 2-20 10’s - 1000’s 100,000’s 1 How many employees

7. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-65 Hmwk: What are the advantages & disdvantages of the different business structures?

8. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p66-71 Exercise 1: Governments make it easier to start a business in recession - what are govt’s doing? International Herald Tribune “Doors open for entrepreneurs” 05-11-2010 Exercise 2: OAK becomes a Limited Company (pg 58-59 qu 1-5) iGCSE Economics/Yr10/SH/25-10 to 03-12

9. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71 Weds 10th Starter exercise:What gets a business the top global ranking? http://www.forbes.com/lists/2010/18/global-2000-10_The-Global-2000_Rank.html What’s the difference in the rankings: Market value Assets Sales Profits iGCSE Economics/Yr10/SH/25-10 to 03-12

10. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71 • Multinational Companies: • Companies which operate in multiple countries, although HQ often in one country • These companies are largest in the world, employing 000’s of people • US and China dominate the list of top 10 largest global companies • Netherlands (Shell), UK (HSBC, Unilever, BP), Russia (Gazprom), Australia/US (BHP Biliton) and Brazil (Petrobras). • Some of these companies are larger than many countries total GDP - of the top 150 economic entities 95 are corporations (larger than Saudi Arabia, Indonesia, S.Africa, Denmark), 55 are countries. iGCSE Economics/Yr10/SH/25-10 to 03-12

11. ADVANTAGES: Able to sell more than other company structures - because they can access more consumers Avoid transport costs (because always based ‘locally’) Can take advantage of different wage levels across the world and specialise activity where wages lowest Economies of scale Less chance of running out of cash Less chance of suffering from shifts in consumer demand - they have economies of scope Can carry out lots of Research & Development Domestic governments value their jobs, consumer income creation and corporate tax revenues DISADVANTAGES Can create massive employment .. And then unemployment if they switch factories to chase lower wages. Workers have little control over jobs. Can switch the creation of profits to the lowest tax regime country Force local, competing firms out of business - unemployment May exploit workers - workers have limited power to negotiate, MNCs switch to countries where govt’s have lower inspection, bureaucracy, health & safety requirements (.e.g developing countries) MNCs may interfere with govt power - they have a strong bargaining hand over lower income countries Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71 iGCSE Economics/Yr10/SH/25-10 to 03-12

12. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71 Assignment (due Nov 17th): Provide a well-reasoned explanation for the typical business structure found for a specific product or service in the market place Objective: In order to assess your knowledge of different business structures, you will select ONE product or service and describe the best ownership, finance and management structure for this business: Executive summary: What product or service have you chosen? What interests you about this product or service?Write 2-3 paragraphs Market Analysis: What type of company/business structures dominate in the market for product or service? Pick at least 5 companies that provide your chosen product/service (try to pick a variety – small and large companies) and create a comparison table Reason: Explain why this type of company/business structure best suits your chosen product. Would you do anything different to the ownership, finance or management structure if YOU were the Chief Executive? Write 2-3 paragraphs iGCSE Economics/Yr10/SH/25-10 to 03-12

13. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p50-71 Weds 17th Starter activity 1 - Question Time Each team will explain their chosen product/service (3mins each) Members of the class will ask questions until they can fill in their question sheets: What is the product/service you chose Describe the typical business structure for your product/service example - give at least 3 descriptive features Confirm typically how the business is controlled and managed day-to-day? Confirm typically who owns it Confirm typically how the business is financed? iGCSE Economics/Yr10/SH/25-10 to 03-12

14. How the government gets involved in running or owning companies: What does ‘the government’ mean?: Central - decisions of national importance: Security & defense Setting interest rates and collecting taxes (monetary policy) Making laws and regulations (e.g. enforcing minimum wages, days holiday per year, minimum education entitlements, carbon emissions) Providing services for the benefit of all society (public goods) - schools, hospitals, major roads etc Local - given responsibility by central government: Make decisions that affect the local area e.g. How many schools & hospitals, maintaining roads, new housing, refuse collection, shopping & leisure facilities (e.g. playgrounds) Government agencies - non elected organisations that are given responsibility for specific activities (e.g. local health services) Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p69-71

15. Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p69-71 How the government gets involved in running or owning companies: Public corporations- owned or controlled by government (centrally or locally): • Day to day running according to central or local government policy (it’s political) • Have a legally separate status, an appointed Board of Directors, financed by taxes • Why? To ensure access to essential or ‘strategic’ goods and services for all consumers at a fair price and reliable quality: • Post office, Civil Aviation Authority, BBC, NHS, Bank Of England • Before 1997: British Railways. • Further back: British Telecom, British Gas, British Petroleum (BP), British Steel, various utilities companies (water, electricity, gas) • May be run for profit or not-for-profit.

16. What are the advantages of nationalised industries: They can act solely in the public interest (not for shareholders profits) Some industries produce large EXTERNAL costs that are hard to measure and allocate specifically because “not my fault” mentality is possible (e.g. pollution): Market price to the supplier is too high (because he doesn’t consider all costs) so the supplier thinks it’s more profitable than it is and over-supplies Nationalised industries can consider ALL social costs when setting prices and produce a more responsible ‘economic’ level of supply Some industries produce large EXTERNAL benefits that are hard to identify in the short term (e.g. education & public transport) so they don’t get priced properly by the market: Market price is too LOW … So there is under-supply Nationalised industries can consider all social benefits and set prices low enough to be affordable/accessible to all because consumption benefits everyone in society (e.g. vaccines) Private Firm as Producer & Employer (Year 10 Economics)References: ECONOMICS (Moynihan & Titley) Ch 4: p69-71

17. RECAP - For example, the private costs of providing public train transport are VERY high but many of the benefits are external – so market misses them External Costs Private/Market Costs • Capital/investment costs – engines, coaches, tracks, signal boxes, network of station buildings • Maintenance costs • Running costs – diesel/oil and electricity • Labour (skilled and unskilled wages) • Marketing & sales (ticketing) • Finance costs (e.g. loans) • Income tax External Benefits • Rural Vs urban connections - little demand but crucial service to rural communities • Happiness to leisure travelers • Jobs are possible in rural locations • Business transport costs are shared – so smaller businesses can trade in non-local (regional) markets up • Increased convenience • Lower risk – no ‘sunk’ capital costs, only a ‘usage’ fee • Lower congestion • Less pollution Private/Market Benefits • Sales revenue – business/firm • Jobs & training & salary – employees • ‘enjoyment’ and convenience of travel – direct consumer • Corporation income taxes - government