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14 Cards in this Set

  • Front
  • Back
How do households dispose of income?
Personal Savings
Personal Consumption
Durable goods?
Products with lives of 3 yrs or more (cars, electronic equipment)
Nondurable goods?
Products with lives of less tahn 3 yrs (food and clothing)
How much consumer spending goes to services?
nearly 60%
What are the 3 legal forms of businesses?
Sole Proprietorship
5 Characteristics of Sole Proprietorship:
1) Owned and Operated by One Person
2) Easy To Set Up
3) Often Fail Financially and are limited in Borrowing Options with only 1 person
4) Solo Entrepreneurship
5) Unlimited Liability
4 Characteristics of Partnership:
1) East to Set Up and Easier to Manage Everything
2) More Financial Options but Still Fairly Limited
3) Divided Authority May Lead to Inaction and Disagreement
4) Even Worse Liability b/c responsible for partner(s)' actions as well
Characteristics of Corporation:
1) Finance Through Stocks, Bonds, and Securities as well as other Easily Obtainable Options
2) Limited Liability = Owners only responsible for selves
3) Legal Entity and has "separate life" from owners and officers; IMMORTAL
4) Double Taxation (Dividends taxed twice; once as stock and again as profits)
Principal-Agent Problem (Who is in both parties, and what is problem?)
Principals - Stockholders who "own corporation"
Agents - Executives who work corporation
Problem - Disagreement
Spillover Occurs When?
Costs or Benefits of Good "spill over" to third party (not immediate buyer or seller)
Exmaple of Spillover Cost
Pollution: Chemical Manufacturer dumps wastes into lake, fish suffer spillover costs
Solutions for Spillover Costs
1) Legislation (Prohibition of stuff)
2) Specific taxes
Exmaple of Spillover Benefits
Education: Better-educated people generally achieve higher income than low-educated people. Also, those schools receive more awards from stellar alumni
Corrections for Spillover Benefits
1) Subsidize consumers
2) Subsidize suppliers
3) Provide goods via government