econ review - circular flow

Circular Flow

A model that shows how money flows through the economy among households, businesses, and government.

Households and Businesses

Households provide labor and receive wages; they spend income on goods/services.

Households and Government

Households pay taxes and receive public goods/services in return.

Businesses and Government

Businesses pay taxes and receive infrastructure/support.

Product Market

Where households buy goods and businesses sell goods.

Resource Market

Where households sell labor and businesses buy resources/labor.

Sole Proprietorship

A business owned by one person with full control and unlimited liability.

Partnership

A business owned by two or more people; includes general, limited, and LLP.

Corporation

A legal entity owned by shareholders that features limited liability.

Multinational

A corporation that operates in more than one country.

Franchise

A business model allowing a person to operate under an existing brand.

Mergers

Combining firms to expand or reduce competition; types include horizontal, vertical, and conglomerate.

Conglomerate

A corporation that owns unrelated businesses.

Cooperative

A business owned and operated by its members.

Non-profit

An organization that focuses on a mission and reinvests profits.

Law of Demand for Workers

As wages rise, businesses demand fewer workers.

Law of Supply for Workers

As wages rise, more people are willing to work.

Equilibrium Point for Labor

The wage where the number of workers businesses want equals the number available.

Frictional Unemployment

Unemployment occurring between jobs.

Seasonal Unemployment

Unemployment based on the time of year.

Structural Unemployment

Unemployment due to a mismatch between skills and job market needs.

Cyclical Unemployment

Unemployment caused by economic downturns.

Labor Force Definition

Individuals 16+ who are working or actively looking for work.

Employed

Individuals who are currently working.

Unemployed

Individuals not working but actively seeking a job.

Underemployment

Working below skill level or part-time unwillingly.

Discouraged Worker

A person who has given up job hunting.

Age Discrimination

Bias against hiring or promoting older workers.

Poverty Threshold

Income cutoff for basic needs.

Poverty Rate

Percentage of people living below the poverty line.

Income Distribution in the US

Highly unequal; top earners hold most income.

Government Actions to Reduce Inequality

Using taxes, welfare, Medicaid, food stamps, and housing programs.

Lorenz Curve

A graph that represents income inequality.

Progressive Tax Structure

Higher income earns a higher tax rate.

Proportional Tax Structure

Everyone pays the same percentage of income in taxes.

Regressive Tax Structure

A tax that takes a larger percentage from lower incomes.

Good Tax Characteristics

Fair, simple, efficient, and hard to avoid.

Tax Incentives

Encouragements for certain economic behaviors, like buying a home.

Payroll Withholdings

Taxes taken from paychecks to fund Social Security and Medicare.