test review chapters 4 & 5. income can go to: taxes savings consumption
TRANSCRIPT
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Test Review
Chapters 4 & 5
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Income can go to:
• Taxes• Savings• consumption
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vertically integrated
• that produces a single product but owns plants in many different stages of the production process
• E.g. US Steel
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three legal forms of business:
• proprietorships • partnerships• corporations
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Limited liability:
• creditors have no legal claim on the personal assets of a corporate stockholder
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principal-agent problem
• goals of the corporate managers may not match the goals of the corporate owners
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"free-rider“ problem
• Certain goods will not be produced because there is no way of excluding nonpaying individuals from the associated benefits
• E.g. missile shield, fireworks show• Example of “market failure”
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redistributional function of govt.
• the transfer of income and of wealth from some individuals to others by means such as taxation, monetary policies, welfare
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Negative externalities
• when firms "use" resources without being compelled to pay for their full costs
• Solution?• Effect?
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public good
• benefits that are available to all, regardless of payment
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stabilization function of government
• Efforts to deal with the problems of substantial unemployment and rapid inflation
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Government's economic role
• complicated by political context
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progressive income tax• percentage of income paid as taxes increases
as income increases
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Trade deficit
• Imports exceed exports• US has trade deficit over past several decades
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Trade has improved due to:
• dramatic improvements in communications technology
• general declines in tariffs• improvements in transportation technology
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basic rationale for international trade
• comparative advantage
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a good should be produced in that nation where
• its domestic opportunity cost is least
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The terms of trade
• the ratio at which nations will exchange two goods
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benefits of international trade include
• more efficient use of world resources and higher living standards
• Nation’s PPC beyond its own domestic potential
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Depreciation of a currency will
• increase the prices of U.S. imports, but decrease the prices of U.S. exports
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U.S. imports from country X
• create demand for country X’s currency
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Protective tariffs
• excise taxes or duties placed on imported products
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Import quotas
• maximum limits on the quantity or total value of specific products imported to a nation
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Export subsidies
• government payments to domestic producers
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World Trade Organization (WTO)
• hears and rules on trade disputes between nations
• Criticisms?
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NAFTA
• North American Free Trade Agreement • increased trade among Canada, Mexico, and
the United States