Economics Chapter 10

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Economics Chapter 10

• Financing and Producing Goods

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Section 1 Investing in the Free-Enterprise System

• Financing- obtaining funds, or money capital.
• Personal funds
• Friends or family
• Financial Institution
• Selling Stock

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Cost-benefit analysis

• Should you expand
• 1. Estimate costs of expansion
• 2. Calculate expected revenues, income
• 3. Calculate expected profits, revenues costs
• 4. How much to borrow funds
• 5. If profits are more than expand

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Why People are willing to Finance Investment

• Savers make interest, money used to finance
• Financers make interest on the loan
• Businesses compete for scarce loans
• Expansion costs high less businesses expanding
• Expansion costs low more expansion

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Section 2 types of Financing for Business
Operations

• Business Credit Check
• Debt Financing- Borrowing money to finance a
  business
• Three Kinds of Financing
• Short-Term Financing-Taken out for a year or
  less. Farmers
• Intermediate-term Financing- Through loans and
  leasing
• Long-term Financing- selling of stocks and bonds

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Choosing the Right Financing

• Interest Rates- Higher rates hold off borrowing
• Financial Condition of the Company
• Market Climate- Right now is a bad time to expand
• Control of the Company- Common stock holders may
  have to vote to offer more stock.

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Section 3 The Production Process

• Production- Changing resources into goods.
• Consumer goods- sold directly to individuals
• A. Planning- Location
• Nearness to markets
• Raw materials
• Labor supply
• Transportation facilities

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Steps in Production Operations

• B. Purchasing- Who to buy materials from.
• C. Quality control- Checking products to meet
  company standards
• D. Inventory Control
• More inventory less capital for other
  activities.

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Technology and Production

• Mechanization- combine labor and machines (1700s)
• The Assembly Line- Ford Motor Company (Early 20th
  century)
• Division of Labor
• Automation- Machines do the work and people
  oversee them.
• Robotics- Do all the work