Chapter 4

 The Private Sector  is made up of households, businesses, and the international sector.  The public sector  refers to activity by the various levels of government. Chapter 42

In the market system of the private sector, the consumer is supreme. In centrally planned economies, a government planning group decides what will and will not be produced. Chapter 43

 Four different groups participate in our economy:  Consumers  Business firms  Government  Foreigners Chapter 44

 Factor (Resource) markets are any place where factors of production are bought and sold.  land, labor, capital, know-how  Product Markets are any place where finished goods and services (products) are bought and sold. Chapter 45

6 The Circular Flow Resource Market BusinessesHouseholds Product Market Government Foreigners

 The resource inputs used to produce goods and services  Land, Labor, Capital, Know-how  Productivity is output per unit of input such as output per labor hour. Chapter 47

 Capital-intensive production  uses a lot of tools & equipment  Labor-intensive production  uses a lot of people  Human capital is the knowledge, skills & abilities possessed by the workforce.  The knowledge and skills workers possess can be accumulated. Chapter 48

 Sole Proprietorship  Partnership  Corporation Chapter 49

+ Easy + Freedom + Fast - Limited Finances - Must make all management decisions - Unlimited liability Chapter 410

+ Easy (but written agreements involved) + Management specialization + Less limited financial resources - Inconsistencies/disagreements - Still financially limited - Continuity difficult (i.e. death) - Unlimited liability Chapter 411

 legal entities, distinct and separate from the owners + Effective at raising money--stocks, bonds, etc. + Easier to expand because easier to get money + Limited liability + Continuity Chapter 412

- Legal red tape and expenses - Easier to be abused (i.e. embezzlement) - Double taxation - Separation of ownership and control Chapter 413

 For 2009  64% wages  6% interest  11% corporate profit  9% proprietors profit  2% rent Chapter 414 Source:

 There are over 115 million households in the U.S.  Median Household Income: $50,502/year. Chapter 415 Source: factfinder.census.gov table s1901

Chapter 416 Source: factfinder.census.gov

Chapter 417

Chapter 418 Source: factfinder.census.gov

 An income quintile is one-fifth of the population, rank-ordered by Income Distribution Chapter 419

Chapter 420 Source:

 The top 20 percent (quintile) of U.S. households gets half of all U.S. income.  The top 5% make 21.5% of the income. Chapter 421

For 2012:  Taxes = 11.0%  Savings = 3.5%  Consumption = 85.5%  Durable--Autos, furniture  Non-durable--Food, clothes, gas  Services--Medical care, housing, recreation Chapter 422 Data Source: table 2.1www.bea.gov

 Durable Goods = 10.8%  Non-Durable goods = 22.8%  Services = 66.4% Chapter 423 Source: table 1.1.5www.bea.gov

Chapter 4

 Federal  income tax  State  sales tax & income tax  Local  property tax & sales tax Chapter 425

1. Providing a Legal Framework 2. Control Externalities 3. Protecting Consumers – maintain Competition 4. Protecting Labor Chapter 426

5. Redistribution of income  Help Provide for those who can’t provide for themselves 6. Reallocation of resources  Pollution Control, Education subsidies, Research Grants 7. Public Goods and Services  Highways, Military and Police Protection 8. Stabilization  Control Unemployment, inflation, etc. Chapter 427

 Monetary policies – control money & credit  Fiscal policies – spending & taxation Chapter 428

 Payments to individuals for which no current goods or services are exchanged:  Social Security  Welfare  Unemployment benefits Chapter 429