resources (inputs) into products (outputs). Firms are the primary producing units in a market economy. An entrepreneur is a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business. Households are the consuming units in an economy. Business organisations A business (also called a company, enterprise or firm) is a legally recognized organization designed to provide goods and/or services to consumers. Businesses are predominant in capitalist economies, most being privately owned and formed to earn profit that will increase the wealth of its owners and grow the business itself. Business organisations The owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk. Notable exceptions include cooperative enterprises and state-owned enterprises. Businesses can also be formed not-for-profit or be state-owned. The Circular Flow of Economic Activity The circular flow of economic activity shows the connections between firms and households in input and output markets. Output, or product, markets are the markets in which goods and services are exchanged. Input markets are the markets in which resourceslabor, capital, and landused to produce products, are exchanged. Payments flow in the opposite direction as the physical flow of resources, goods, and services (counterclockwise). Input Markets Input markets include: The labor market, in which households supply work for wages to firms that demand labor. The capital market, in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods. The land market, in which households supply land or other real property in exchange for rent. ORGANISATION organization [awr-guh-nuh-zey-shuhn] 1.the act or process of organizing. 2.the state or manner of being organized. 3.something that is organized. 4.organic structure; composition: The organiz ation of this painting isquite remarkable. 5.a group of persons organized for some end or work; association:a nonprofit organization. Basic forms of ownership Two Sectors The economy can be divided into two sectors: The Private Sector The Public Sector The Private Sector Private individuals and firms that are owned by private individuals Forms of business ownership vary by jurisdiction, there are several common forms: Sole proprietorship Partnership Corporation Cooperative Sole proprietorship A sole proprietorship also known as a sole trader, or simply proprietorship is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. All profits and all losses accrue to the owner (subject to taxation). All assets of the business are owned by the proprietor and all debts of the business are their debts and they must pay them from their personal resources. This means that the owner has unlimited liability. It is a "sole" proprietorship in the sense that the owner has no partners (partnership). A sole proprietor may do business with a trade name other than his or her legal name. This also allows the proprietor to open a business account with banking institutions. Partnership A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business. Partnerships are often favoured over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied). However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as a shareholder of a corporation. Corporation A corporation is a legal entity separate from the shareholders and employees. In British tradition it is the term designating a body corporate, where it can be either a corporation sole (an office held by an individual natural person, which is a legal entity separate from that person) or a corporation aggregate (involving more persons). In American and, increasingly, international usage, the term denotes a body corporate formed to conduct business. Corporations exist as a product of corporate law, and their rules balance the interests of the management who operate the corporation; creditors who loan it goods, services or money; shareholders, typically in the secondary market, who hold shares related to the original investment of capital; the employees who contribute their labour; and the clients they serve. People work together in corporations to produce value and generate income. In modern times, corporations have become an increasingly dominant part of economic life. People rely on corporations for employment, for their goods and services, for the value of the pensions, for economic growth and cultural development. Cooperative A cooperative often referred to as a co- op or coop) is defined by the International Co-operative Alliances Statement on the Co-operative Identity as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise It is a business organization owned and operated by a group of individuals for their mutual benefit. A cooperative may also be defined as a business owned and controlled equally by the people who use its services or who work at it. Cooperative enterprises are the focus of study in the field of cooperative economics. Also Economic democracy Franchising Joint venture Holding companies Holding company holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself, rather its only purpose is owning shares of other companies. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies. Economic democracy Economic democracy is a socioeconomic philosophy that suggests transfer of decision-making authority from a small minority of corporate shareholders to the larger majority of public stakeholders. While there is no single definition or approach, all theories and real-world examples of economic democracy are based on a core set of fundamental assumptions. Proponents generally agree that modern economic conditions tend to hinder or prevent society from earning enough income to purchase its output production. Centralized corporate monopoly of common resources typically forces conditions of artificial scarcity upon the greater majority, resulting in socio-economic imbalances that restrict workers from access to economic opportunity and diminish consumer purchasing power. Franchising Franchising is the practice of using another person's business model. The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee. Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor. Agreements typically last from five to thirty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees. Franchising has been around for many centuries but did not come to prominence until the 1930s in the United States, when the establishment of electricity, vehicles, and, in the 1950s, the Interstate Highway system helped propel modern franchising, most notably franchise-based food service establishments. According to the International Franchise Association approximately 4% of all businesses in the United States are franchises. Joint venture A joint venture (often abbreviated JV) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Fuji Xerox joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement. The phrase generally refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, limited liability company, partnership or other legal structure, depending on a number of considerations such as tax and civil liabilities. The Public Sector Made up of central government, local government, and businesses that are owned by government In the last twenty years the number of government-owned firms in the UK has shrunk massively Now, very few examples remain: for instance, the Royal Mail Private Sector Firms One of the key differences is between: Sole traders and partnerships whose liability is unlimited And Private Limited and Public Limited Companies, who have limited liability Other Business Types Co-operatives are owned by their staff, who are members of the firm Profits are shared amongst the members Losses too must be shared Franchises Many businesses today are franchises A business idea is licensed to a franchisee The owners of the brand receive a license fee The franchisee gains the right to use the business brand Not For Profit Businesses Many charity-based business organisations are run as not for profit operations They typically receive donations or funds from groups or government Any financial surplus is ploughed back into the business The organisation does not aim to generate profits Inflation According to Parkin and Bade Inflation is an upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation and deflation is price stability. Wage inflation is also called as demand pull or excess demand inflation. This type of inflation occurs when total demand for goods and services in an economy exceeds the supply of the same. Pricing Power Inflation is more often called as administered price inflation. This type of inflation occurs when the business houses and industries decide to increase the price of their respective goods and services to increase their profit margins. What is CPI? CPI measures changes in the price level of market basket of consumer goods and services purchased by households The consumer Price Index market basket is developed from detailed monthly records kept by govt. officials who are hired to track and record prices of preselected items in stores. The important role of CPI market basket is specifically to measure inflation as experienced by consumers in their day-to day living expenses.