10. Major kinds of business organizations

One of the major economic institutions is the business organization, a profit-seeking enterprise¹ that serves as the main link between scarce resources and consumer satisfaction. These businesses compete with one another for the chance to satisfy people’s wants.

There are three major kinds of business organizations: the sole proprietorship², the partnership³ and the corporation⁴.

The most common form of business organization is the sole proprietorship — a business owned and run by one person. The main advantage of a sole proprietorship is that it is the easiest form of business to start and run. There is almost no red tape⁵ involved. Most proprietorships are able to open for business as soon as they set up operations. In the event that the owner wants to dissolve the business⁶, a sole proprietorship is as easily dissolved as it is formed.

Sole proprietors own all the profits of their enterprises and are free to make whatever changes they please. They have minimal legal restrictions and do not have to pay the special taxes placed on corporations. They also have the opportunity to achieve success⁷ and recognition through their individual efforts. Sole proprietorships are generally found in small-scale retail and service businesses such as beauty salons, repair shops, or service stations.

The major disadvantage of a sole proprietorship is the unlimited liability⁸ that each proprietor faces. Since the business and the owner are legally the same, the sole proprietor is liable for⁹ all financial losses or debts that the business may incur. If a business fails, the owner must personally assume the debts¹⁰. This could mean the loss of personal property such as automobiles, homes and savings¹¹.

A second disadvantage of the sole proprietorship is that it has limited financial resources. The money that a proprietor can raise is limited by the amount of savings and ability to borrow. Another serious problem faced by the sole proprietorship is the lack of continuity of the business. When the owner dies, the business also legally terminates.

Comments

10. 1. a profit-seeking enterprise — прибуткове пiдприємство

11. 2. sole proprietorship/sole trader/one-man firm — одноосiбна власнiсть

12. 3. partnership — партнерство

13. 4. corporation — корпорація

14. 5. red tape — бюрократизм

15. 6. to dissolve the business — припинити діяльність підприємства

16. 7. to achieve success — досягти успіху

17. 8. unlimited liability — необмежена юридична відповідальність

18. 9. to be liable for — бути відповідальним за

19. 10. to assume the debts — приймати/брати на себе борги

20. 11. savings — заощадження

11. Demand and supply

Economists define demand as a consumer’s desire or want, together with his willingness to pay for what he wants. When we exercise our choice, we do so according to our personal scale of preferences. In this scale of preferences essential commodities come first (food, clothing, shelter, medical expenses etc.), then the kind of luxuries which help us to be comfortable (telephone, special furniture, insurance etc.), and finally those non-essentials which give us personal pleasure (holidays, parties, visits to theatres or concerts, chocolates etc.). Law of Demand says that the demand for an economic product varies inversely with its price. if prices are high the quantities demanded will be low. If prices are low the quantities demanded will be high. Elasticity of demand is a measure of the change in the quantity of a good, in response to demand. The change in demand results from a change in price. Demand is inelastic when a good is regarded as a basic necessity4, but particularly elastic for non-essential commodities.

In economic theory, the term «supply» denotes the amount of a commodity or service offered for sale at a given price. Everyone who offers an economic product for sale is a supplier. The law of supply states that the quantity of an economic product offered for sale varies directly with its price. If prices are high suppliers will offer greater quantities for sale. if prices fall either locally or throughout the world, producers will reduce production. Overproduction of any commodity can also create difficulties, because it can lead to a glut on the market, which may cause prices to fall sharply. Supply is determined also by factors other than price, the most important being the cost of production and the period of time allowed to supply to adjust to a change in prices. The supply curve shows us how many units of a particular commodity or service would be offered for sale at various prices.

Just as economists study the amount of goods and services brought to market by a single producer, they also study the total amount of goods and services produced by the economy as a whole. Thus, they examine aggregate supply¹ — the total amount of goods and services produced by the economy in a given period, usually one year.

A number of factors affect an economy’s aggregate supply. Two of these are the quantity of resources used in production and the quality of those resources. For example, an economy must have an adequate supply of natural resources and capital goods to be productive².