Chapter 4 - Private Sector 1 Households approximately 113...

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Private Sector 1. Households - approximately 113 million households consisting of one or more persons occupying a housing unit; they are the suppliers of resources and the ultimate spenders in the economy. 2. Businesses Household Income 1. Functional Distribution of Income- How the nation’s income is apportioned among wage, rent, interest, and profit. 2005 Wage and Salaries $7,125B (71%) Proprietor’s Income $939B (9%) -A portion is the wage for proprietor’s labor -A portion is profit for entrepreneurial skills a. Services- 59% -Intangible products b. Nondurable goods 29% -Products with expected useful lives of less than three goods. c. Durable goods 12% -Products with expected useful lives of at least three year 2. Personal taxes -By comparison , in 1941, only 3% of household income went to personal taxers 3. Personal saving -2005 was atypical, about 3% of personal income is saved; in 2005 there was a great amount of borrowing or ‘dissaving’ for mortgages. -Security: provide for unforeseen circumstances, retirement, and education -Speculation: Use savings to acquire financial investments that my increase in value 2. Businesses a. Levels Plant- physical establishment; factory, farm, store that is used in making or distributing goods and services. Firm- business organization that owns and operates on or more plants. Industry- group of firms that produce the same or similar products b. Legal forms of Businesses 1. Sole proprietorship- business owned and operated by one person 2. Partnership- 2 or more individuals agree to own and operate a business together. Share risks and profit of loss
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3. Corporation- a legal entity that acquire resources, own assets, produce and sell products, incur debts, extend credit, sue and be sued, etc. A corporation is separate and distinct from stockholders. Hired managers and run operations. Public Sector - Government at federal, state, and local levels. Government’s Role in the Economy 1. Provide legal structure and services for market economy to operate a. Determine legal status of businesses b. Protect private property c. Allow making and enforcement of contracts. d. Provide rules that control relationships among businesses, resource suppliers, and consumers e. Impose penalties in cases of foul play f. Supply money g. Regulate industry 2. Maintain Competition a. Pass regulations and antitrust laws to control monopoly 3. Redistribute Income a. Transfer payments- welfare, food stamps, etc. to provide for ill, dependent, elderly, unemployed b. Market intervention- modify market prices (ex: minimum wage) c. Taxation- “progressive” income tax takes higher proportion of higher incomes 4. Reallocates Resources in cases of “Market Failure” a. Spillovers or externalities- occur when all of the benefits or costs of a
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