ECON102_SCHULZE_2 - #2 Firms & Households: The Basic...

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#2 12/02/2007 22:01:00 Firm o An organization that transforms resources (inputs) into products  (outputs).  Firms are the primary producing units in the market  economy. Households or Consumers o The consuming units in an economy Product or Output Market o The market in which goods or services are exchanged Input or Factor Markets o The market in which the resources are used to produce products are  exchanged Labor Market o The input/factor market in which households supply work for wages to  firms that demand labor Capital Market o The input/factor market in which households supply their savings, for  interest or for claims to future profits, to firms that demand funds to buy  capital goods Land Market o The input/factor market in which households supply land or other real  property in exchange for rent Factors of Production o The inputs into the production process.  Land, labor, and capital are  the three key factors of production.  Of course natural resources  including air, water, energy, minerals, and biological resources are  needed. *Input and output markets are connected through the behavior of both firms and  households. Firms determine the quantities and character of outputs produced and the  types of quantities of inputs demanded. Households determine the types and quantities  of products demanded and the quantities and types of inputs supplied. Demand in Product/Output Markets
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A household’s decision about what quantity of a particular output, or product,  to demand depends on a number of factors including: o The price of the product in question o The income available to the household o The household’s amount of accumulated wealth
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This note was uploaded on 03/30/2008 for the course ECON 1120 taught by Professor Wissink during the Spring '05 term at Cornell University (Engineering School).

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ECON102_SCHULZE_2 - #2 Firms & Households: The Basic...

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