Chapter 3 Economics Essay

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1What to produce 2. How to produce 3. How to allocate the products 4. How should production be shared
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4 questions of macroeconomics
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Markets, government, and international trade
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List the three facets of a modern economy
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market
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arrangement that allows buyers and sellers to exchange goods and services
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1.households 2.firms
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List the two decision-makers
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Households and firms
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The economy consist primarily of _____ & _____.
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A household
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What is an individual or group of people who live in the same housing unit?
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Firm
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What is an organization that uses resources to produce a product which it then sells?
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1.We need governments to enforced basic contracts and property rights in markets 2.to provide goods and services not readily delivered through markets 3.and to deal with deficiencies that emerge from pure market transactions
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List three reasons why we need governments in the economy
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Sellers, buyers
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Households are _____ of factors and _______of goods.
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Buyers, sellers
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Firms are _____ of factors and ______ of goods.
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Factor (input) markets Product (output) markets
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What two markets and do households and firms interact in?
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A two tier income flow chart
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What shows the relationship between households and firms
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The flow of resources (inputs and products)
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On a two-tier income flow chart what is the inner flow?
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Monetary flow
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On a two-tier income flow chart what is the outer flow?
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1.doesn’t include government interaction 2.forgets international Trade effects
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What two areas makes a two-tier income flow chart incomplete?
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Specialization and trade
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What are the two foundations of capitalism?
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market system
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system in which individuals and firms use markets to facilitate the exchange of money and products
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absolute advantage
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ability of one person/nation to produce a particular good at a lower absolute cost than another person/ nation; nominal value
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comparative advantage
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ability of one person/nation to produce a particular good at a lower opportunity cost than another person/ nation; lower opportunity cost
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1.increase in productivity 2.increase in income 3.saves time 4.reduces production cost
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What are the specialization advantages?
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Sole proprietorship
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A firm which is owned by a single person who is liable for all the firms debts?
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70%,6%
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What percent do sole proprietorships make up of all firms; what percent of total sales?
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Partnership
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What firm is owned by two or more partners in which all partners are individually liable for the firm’s debts?
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8%, 4%
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What percent do partnerships make up of all firms; what percent of total sales?
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Corporation
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What is a legal entity owned by stockholders?
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22%, 90%
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What percent do corporations make up of all firms; what percent of total sales?
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By filing a corporate charter with a state government in the state that it is doing business in
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How is a corporation established?
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multinational corporation
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an organization that produces and sells goods and services throughout the world
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Factor (input) markets
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A market Of the factors of production?
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Capital goods
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What do factor markets produce?
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Labor markets, capital markets, natural resource markets
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What are the three types of factor markets?
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Labor markets
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This is the market in which firms hire workers for wages
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Capital markets
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Markets in which households provide funds for first to use to buy equipment, and receive an interest of the firm’s profits in return
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Natural resource market
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Market in which household sell natural resources to firms
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Product markets
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Markets that organizations used to sell their goods and services to consumers?
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Consumer goods
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What do product markets produce?
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1.providing goods and services 2.redistributing income 3.taxation 4.regulation of business practices 5.trade policy
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What are the five government functions in the economy?
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Education
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What do local government spend most their money on?
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Property taxes
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What is the local governments main source of revenue?
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Education and public welfare
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What do state government spend most their money on?
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Sales tax
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What is the state government’s main source of revenue?
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Income security, then national defense
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What do federal government spend most of their money on?
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Individual income taxes
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What is the national government’s main source of revenue?
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benefit-tax approach
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the idea that a person’s tax liability should depend on how much he/she benefits from government programs
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horizontal equity
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exists when people of similar circumstances pay similar taxes
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vertical equity
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implies that people with higher incomes should pay higher taxes
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run the government from day to day
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income taxes are needed to ____________.
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People’s choices & markets
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Taxes distort _____ & _____, and one of the objectives of tax policies is to minimize such disruptions
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The securities and exchange commission (sec)
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This federal agency regulates the purchase and sale of stocks in the stock markets
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Federal trade commission (FTC)
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This federal agency Control mergers of large corporations to ensure that they don’t result into too much power for one corporation
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Federal Communications Commission
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Federal agency that regulates broadcast, TV, and radio
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Food and drug administration
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Federal agency that ensures the safety of food and medicine
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Occupational safety and health administration
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Federal agency that enforces the safety of working conditions
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Environmental Protection Agency
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Federal agency that creates rules on dumping wastes into air and water
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mixed economy
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economic system under which government plays an important role, including the regulation of markets, where most economic decisions are made
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centrally planned economy
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economy in which a government bureaucracy controls the factors in production
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inefficiency and waste
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Socialism results in what two problems
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transition
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process of going from socialism to move toward a more capitalistic economy
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privatization
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process of selling state firms to individuals
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export
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good produced in “home” country & sold in another country
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import
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good produced in a foreign country and purchased by residents of the “home” country
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Canada, Japan, and Mexico
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3 major trade partners of U.S.
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1.machines,engines, and pumps 2.electronic equipment 3.oil 4.vehicles 5.aircraft,spacecraft
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Top 5 major exports of U.S.
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1.apparel 2.footwear 3. furniture 4. kitchen & household appliances 5. automobiles
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Top 5 major imports of U.S.
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trade barriers
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rules that restrict the free flow of goods b/w nations, including tariffs, quotas, voluntary export restraints, & nontariff trade barriers
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tariff
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special tax on imported goods
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to protect home industries
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reason for tariffs
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quota
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limits on total imports
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voluntary export restraints
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agreements between governments to limit imports
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nontariff trade barriers
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subtle practices that hinder trade
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worldwide sourcing
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the practice of buying components for a product from nations throughout the world
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outsourcing
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another name of worldwide sourcing
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General Agreement on Tariffs and Trade(GATT)
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an international agreement that has lowered trade barriers between the U.S. and other nations
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World Trade Organization (WTO)
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an organization that oversees the GATT and other international trade agreements
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North American Free Trade Organization (NAFTA)
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an international agreement that lowers trade barriers between the U.S., Mexico, and Canada
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European Union (EU)
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Organization of 28 countries in Europe that has reduced trade barriers within Europe and make a single European market
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Asian Pacific Economic Cooperation (APEC)
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An organization of 21 Asian countries that attempts to reduce trade barriers between their nations, also includes countries in Pacific Ocean
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1. many governments adopt policies to inhibit trade 2.since each country has its own currency, there must be a market where currency can be traded
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2 complications involved with international trade
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foreign exchange market
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a market in which people exchange one currency for another
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exchange rate
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price at which currencies trade for another
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1. WalMart 2. Exxon Mobile 3. Chevron 4. Berkshire Hathaway 5. Apple
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Top 5 Global Corporations
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Gross Domestic Product (GDP)
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total dollar value of all the goods and services a country produces in a year

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