Chapter 3: Economic Decision Makers

Question 1

Households, firms, governments, and the rest of the world

Answer 1

Who are the 4 economic decision makers?

Question 2

Agricultural

Answer 2

In earlier times, the economy was primarily _________

Question 3

Self-sufficient, consumed

Answer 3

Because of the agrarian nature of the economy in early times, the house hold was largely __________ and ___________ what it produced

Question 4

Better farming techniques and technology

Answer 4

What reduced the number of farmers and caused a shift in the economy

Question 5

specialization, less

Answer 5

The rise of the two-earner household reduced __________ in household production and caused them to produce ______ for themselves and demand more from the market

Question 6

level of satisfaction, sense of well-being, happiness, and overall welfare

Answer 6

Economists assume that people try to maximize their _________________

Question 7

Utility

Answer 7

Households attempt to maximize __________

Question 8

Utility

Answer 8

the satisfaction received from consumption; sense of well-being

Question 9

limited resources, unlimited wants

Answer 9

Households use their ____________ —labor, capital, natural resources, and entrepreneurial ability—to satisfy their ________

Question 10

labor earnings

Answer 10

More than two-thirds of personal income in the United States comes from ______ rather than from the ownership of other resources such as capital or natural resources

Question 11

transfer payments

Answer 11

cash or in-kind benefits given to individuals by the government

Question 12

cash transfers

Answer 12

monetary payments, such as welfare benefits, social security, unemployment compensation,and disability benefits

Question 13

In kind transfers

Answer 13

giving actual goods like food, health care, and housing to people in place of money

Question 14

Durable goods, nondurable goods, and services

Answer 14

Most of personal income goes to personal consumption in three broad spending categories:

Question 15

durable goods

Answer 15

goods expected to last three or more years such as automobiles or refrigerator

Question 16

nondurable goods

Answer 16

items such as food, clothing, and gasoline

Question 17

services

Answer 17

things like haircuts, air travel, and medical care

Question 18

no longer self-sufficient

Answer 18

Specialization and comparative advantage explain why households are ____________

Question 19

to reduce the transaction costs

Answer 19

An entrepreneur, by contracting for many sweaters rather than just one, is able ______________

Question 20

Cottage industry system

Answer 20

a system where profit seeking entrepreneurs relied on putting out raw materials like wool and cotton to rural households that turned this into finished products

Question 21

• promoted a more efficient division of labor
• allowed for the direct supervision of production
• reduced transportation costs
• facilitated the use of machines far bigger than anything used in the home

Answer 21

The production process became organized in large, centrally powered factories that

Question 22

Industrial Revolution

Answer 22

development of large-scale factory production that began in Great Britain around 1750 and spread to the rest of Europe, North America, and Australia

Question 23

Firms

Answer 23

economic units formed by profit-seeking entrepreneurs who employ resources to produce goods and services for sale

Question 24

maximize profit

Answer 24

We assume firms are trying to _____________

Question 25

as a sole proprietorship, as a partnership, or as a corporation

Answer 25

A firm is organized in one of three ways:

Question 26

Sole Proprietorship

Answer 26

a firm with a single owner who has the right to all profits but who also bears unlimited liability for the firm's losses and debts

Question 27

See sole proprietorship, partnership, and corporation notes in Chapter 3

Answer 27

See other side

Question 28

Partnerships

Answer 28

a firm with multiple owners who share the profits and bear unlimited liability for the firm's losses and debts

Question 29

Corporations

Answer 29

a legal entity owned by stockholders whose lability is limited to the value of their stock

Question 30

S corporation

Answer 30

provides owners with limited liability, but profits are taxed only once-as income on each shareholder's personal income tax return

Question 31

Cooperative

Answer 31

an organization consisting of people who pool their resources to buy and sell more efficiently than they could individually

Question 32

Consumer Cooperative

Answer 32

a retail business owned and operated by some or all of its customers in order to reduce costs

Question 33

Producer Cooperative

Answer 33

producers join forces to buy supplies and equipment and market their output

Question 34

Not-for-profit Organizations

Answer 34

groups that do not pursue profit as a goal; they engage in charitable, educational, humanitarian, cultural, professional, or other activities, often with a social purpose

Question 35

performs that task

Answer 35

If a household's opportunity cost of performing a task is below the market price, then the household usually ________________

Question 36

Information Revolution

Answer 36

technological change spawned by the microchip and the Internet that enhanced the acquisition analysis, and transmission of information

Question 37

Market failure

Answer 37

a condition that arises when the unregulated operation of markets yields socially undesirable results

Question 38

Antitrust laws

Answer 38

prohibitions against price fixing and other anticompetitive practices

Question 39

collusion

Answer 39

an agreement among firms to fix the price and carve up the market

Question 40

Monopoly

Answer 40

a sole supplier of a product with no close substitutes

Question 41

Natural monopoly

Answer 41

one firm that can supply the entire market at a lower per-unit cost than could two or more firms

Question 42

Rival, exclusive

Answer 42

private goods are _____ and ______ in consumption

Question 43

Rival

Answer 43

the amount consumed by owner person is unavailable for others to consume

Question 44

Private goods

Answer 44

a good, such as pizza, that is both rival in consumption and exclusive

Question 45

Public goods

Answer 45

a good that, once produced, is available for all to consume, regardless of who pays and who doesn't;such a good is nonrival and nonexclusive, such as a safer community

Question 46

Externality

Answer 46

a cost or a benefit that affects neither the buyer nor the seller, but instead affects people not involved in the market transaction

Question 47

external cost such as factory pollution

Answer 47

A negative externality imposes an

Question 48

external benefit such as getting inoculated against a disease (lowers the possibility of infecting others)

Answer 48

A positive externality confers an

Question 49

Fiscal Policy

Answer 49

borrowing to influence economy-wide variables such as inflation, employment, and economic growth

Question 50

Monetary Policy

Answer 50

regulation of the money supply to influence economy wide variables such as inflation, employment, and economic growth

Question 51

GDP

Answer 51

the total value of all final goods and services produced in the US

Question 52

Bulk

Answer 52

Taxes provide the ______ of revenue at all levels of government

Question 53

Ability-to-pay tax

Answer 53

those with a greater ability to pay, such as those earning higher incomes or those owning more property, should pay more taxes

Question 54

Benefits-received tax principle

Answer 54

those who get more benefits from the government program should pay more taxes

Question 55

Tax incidence

Answer 55

the distribution of tax burden among taxpayers; who ultimately pays the tax

Question 56

Proportional taxation

Answer 56

the tax as a percentage of income remains constant as income increases; (also called a flat tax)

Question 57

Progressive taxation

Answer 57

the tax as a percentage of income increases as income increases

Question 58

Marginal tax rate

Answer 58

the percentage of each additional dollar of income that goes to the tax

Question 59

Regressive taxation

Answer 59

the tax as a percentage of income decrease as income increases

Question 60

the opportunity costs of producing specific goods differs across countries

Answer 60

International trade occurs because ______________

Question 61

Merchandise trade balance

Answer 61

the value during a given period of a country's exported goods minus the value of its imported goods

Question 62

Balance of payments

Answer 62

a record of all economic transaction during a given period between residents of one country and residents of the rest of the world

Question 63

Foreign exchange

Answer 63

foreign money needed to carry out international transactions

Question 64

Tariffs

Answer 64

a tax on imports

Question 65

Quotas

Answer 65

a legal limit on the quantity of a particular product that can be imported or exported