BMGT 110

Introduction to Business and Management

Spring 2014

Quiz #1

Chapters 1-5

INSTRUCTIONS:

Type your name on the answer sheet, below.

Scroll down to see the three questions that make up this quiz. Each question is worth up to 5 points.

Type your answer to each question on the page below the question. Your answer should be approximately 1 page in length, double-spaced, for each question.

Submit your answers in your Assignment Folder by the due date.

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Answer Sheet

Name:

Question 1: Although most new businesses start out as sole proprietorships, few large businesses are organized this way. Why is the sole proprietorship such a popular form of ownership for new businesses? What features of sole proprietorship make it unattractive for growing businesses? What business forms would be more appropriate for a growing business?

A sole proprietorship is such a popular form of business for many different reasons. The most popular of which I believe is that a sole proprietorship can be started by one person with an idea. A sole proprietorship is easy to setup, and easy to maintain. There are no taxes on the business other than income generated from the business which is taxed directly to the owner. It can be a very popular form of business for someone who is interested in owning 100% of their company. Usually most startups form as sole proprietorships where the owner is the man with the ideas and the vision for the business.

Some of the advantages to owning a sole proprietorship involve the ownership of the business. The sole proprietor has complete control over what they would like to do with their company whether that be selling it, transferring it, or growing it. There are no corporate tax payments in a sole proprietorship, there are very few formal business requirements, and little legality involved in forming a sole proprietorship.

The disadvantages of a sole proprietorship include, but are not limited to several of the following details such as debts, employees, and responsibilities. When a sole proprietorship is formed the business owner is responsible for all business debts acquired through the business. Liabilities are the sole responsibility of the owner, and an owner will be responsible for any and all legal activities conducted by an employee of the business. It can be very difficult to acquire investors in a sole proprietorship because there is no room for the investor to grow their money other than to charge interest or royalties.

In growing a business I would first start with looking at a sole proprietorship and then look at moving to either a limited liability corporation or incorporating your business. Incorporating a personal business can really prove to protect the business owner from liabilities, and can serve to save you thousands of dollars in taxes.

Question #2: Explain how prices are determined in a free-market economy. During the recent recession, consumers were less willing and able to purchase products they had grown accustomed to buying. Describe how the supply and demand curves were affected by consumers’ decisions to pull back on their spending.

Prices in a free market economy are determined by supply and demand. When you have a great product that everyone is in need of, you can charge a higher price because of the demand for the product or service. When you are selling something that is a luxury item or good frequently it can be difficult to attract business when times become tough. In the free market economy there is competition, and competition is a good thing for businesses. It ensures that no one player gets too far ahead of the others. Prices in a free market will often fluctuate with the status of the economy, however they will stabilize over time becoming a system which works for both consumer and supplier.

When the recession hit America and other surrounding areas people started to hold onto their money more and more. This creates a cascading effect throughout the economy which can result in further damaging the economy. In order to stabilize the economy it is necessary to have the players in the economy spend money. When people start to spend money they tend to also make money, which represents the normal ebb and flow in the economy.

The supply and demand curves change drastically in an economic recession. The first step in the process is when the consumers begin to get tight on their cash. When a consumer feels that times are tight their demand for everyday goods begins to go down. As the demand goes down the price point on the supply side begins to move down with it until the economy is reestablished and people begin to become more comfortable spending money. This being said, we can conclude that what really begins to hurt the economy is when people start to save their money. When you save your money it forces others to save their money, which creates a vicious cycle where there isn’t enough cash flow into the economy to restore balance. This is why government programs like cash for clunkers are establish to make people spend money.

Question #3: Why would a U.S. company decide to form a strategic alliance with a company in another country? What kinds of ethical considerations might the U.S. company be faced with given possible differences in laws and standards between the two countries?

Generally a U.S. company decides to form a strategic alliance with companies outside of the U.S. because they can be make the U.S. companies more efficient. To understand what makes these businesses more efficient we have to understand what advantages are made by going outside of the U.S. There can be many reasons to partner up with an international company, and these usually include saving money on costs, and decreased price point for inventory creation and services. When a company that works within the U.S. is able to outsource their day to day menial tasks to a company in another country it generally means that they are taking advantage of the other companies lower operating costs. This can lead to a great relationship between both companies. The company in the U.S. begins to make more money than it did previously which can lead to more profits for the U.S. company. The foreign company gains a new customer which usually pays very well compared to if they were to do business with their own country alone.

As a U.S. company it dealing with companies outside of the U.S. can lead to ethical differences and standards from country to country. For instance when outsourcing product creation to China we may find that children under the age of 14 are often being used to do the labor for your company. This can definitely become an ethical issue for the company especially if the children are underpaid and working for far less than what they should be making. This can lead to bad press, and can even lead to entire companies being shut down that rely too heavily upon outsourcing to other countries. Generally it is for reasons such as these that often companies go to great lengths to stay within the U.S. to proudly wear the stamp “Made in the USA”.