Chapter 4: The US Economy: Private and Public Sectors

Illustrates how the nation’s income is distributed among wages, rents, interest, and profits

How the nation’s total income is divided among individual households

Products with expected lives of 3 years or more

Products with expected lives of less than 3 years

Work done for consumers by lawyers, barbers, doctors, etc.

Physical establishment that helps with manufacturing and distributing goods and services

Organization that uses resources to produce goods and services for profit

Group of firms that produces same, or similar, products

Business owned + operated by 1 person

Business owned + operated by 2+ people; share risks, profits, and losses

Distinct/separate from individual stockholders that own it; run by hired managers

Share in the ownership of a corporation

Lends money to corporation; no corporate ownership for purchaser

Stockholders risk only what they paid for their stock; personal assets not at stake

Interests of people managing the corporation (agents) and of the owners (principals) don’t always coincide

Single seller controls an industry

Some of the costs or benefits of a good “spill over” to 3rd parties that aren’t the buyer or seller

Production or consumption costs that affect 3rd parties without compensation

________- Produced through competitive market system; rivalry + excludability.

Production or consumption benefits that are enjoyed by 3rd parties

Everyone can simultaneously obtain benefits; one person’s benefit does not reduce benefits available to others

People can receive benefits from a public good w/o paying for it

Government provides public goods and services that could include exclusion (could be provided by private firms)

Products purchased directly absorb resources + are part of domestic output

Don’t directly absorb resources or create output; recipients don’t contribute to domestic

Levied on taxable income

Rate at which the tax is paid on each additional unit of taxable income

Total tax paid divided by total taxable income

Taxes based on wages + salaries used to finance compulsory federal programs

Levied on a corporation’s profit

Taxes on commodities or purchases

Make up 72% of local governments’ tax revenue