Chapter2

Chapter2 - ECONOMICS 101 CHAPTER 2 I Circular Flows of Income models useful simplifications of reality as simple as possible definition shows

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Resources Firms Households Goods 8/26/2007 E CONOMICS 101 C HAPTER 2 I) Circular Flows of Income models - useful simplifications of reality - as simple as possible definition: shows interactions between households and firms (private sector) Private Sector - markets pivot on the decisions of the private sector - households (i) center for consumption and ultimately own all wealth including resources that they make available to businesses or government in exchange for income (ii) term covers groups from individuals living alone to extended families (iii) labor is the principal asset (iv) ¾ of income coming from wages; ¼ from rent, interest, profits (v) household saving is the primary source of investment funds for business firms (vi) measure of national income (a) the amount of money going to households from resources - firms (i) a privately owned and operated center for production (ii) most of U.S. national output produced by firms (iii) artificial organization through which we channel
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8/26/2007 (iv) doesn’t pay taxes (stockholders, workers, and customers do) (v) GDP (a) the value of annual production in society (b) the measure of “Price x Quantity” from Goods to Firms Public Sector - the government - takes a back seat to the marketplace as a dominant allocative mechanism - directly provides some goods and services - indirectly channels resources and the production and consumption of other goods via taxes and regulations - taxes are the primary source of government revenue
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8/26/2007 I I) Specialization and Trade Division of Labor - entails dividing the work required to produce a given good or accomplish a particular task - teamwork fosters productivity - people develop expertise in particular jobs Comparative Advantage - mutually beneficial exchange is possible however relative production costs
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This note was uploaded on 03/19/2008 for the course ECON 101 taught by Professor Balaban during the Fall '07 term at UNC.

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Chapter2 - ECONOMICS 101 CHAPTER 2 I Circular Flows of Income models useful simplifications of reality as simple as possible definition shows

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