Overview of Taxation, Labor Laws, and Economic Systems

Proportional Tax

This type of tax imposes the same percentage rate of taxation on everyone, regardless of income.

Progressive Tax

This type of tax imposes a higher percentage rate of taxation on higher incomes than on lower ones.

Regressive Tax

This type of tax imposes a higher percentage rate of taxation on lower incomes than on higher ones.

Internal Revenue Service

The government agency responsible for managing the federal income tax.

Tax Deduction

An expense that you are not required to pay taxes for according to current tax law.

Tax Return

Money that you receive back from the government if you paid more than the required amount for the previous year's taxes.

Social Security

One of two kinds of federal payroll taxes (money withheld from your paycheck) other than federal income tax.

Medicare

One of two kinds of federal payroll taxes (money withheld from your paycheck) other than federal income tax.

Corporate Income Tax

This kind of tax is paid by publicly traded businesses for profits made during the year.

Excise Tax

This kind of tax is levied on the manufacture or sale of selected items such as gasoline, alcohol, or cigarettes.

Estate Tax

This kind of tax is levied on the transfer of property when a person dies.

Customs Duties

This kind of tax is charged on goods brought into the United States from another country.

Export Taxes

The kind of tax on trade that is prohibited under the U.S. Constitution.

Gift Tax

This kind of tax is charged on the transfer of money or wealth from one person to another.

Standard Deduction

The dollar amount that taxpayers may automatically subtract from their income before income tax is applied.

Minimum Wage Influencing Factors

Federal law, cost of living, inflation, political party in power, labor supply in a given market or industry.

Current Federal Minimum Wage

$7.25 per hour, first going into effect in 2009.

Arguments for Increased Minimum Wage

Increased standard of living, Increased consumer spending, reduced poverty.

Arguments Against Increased Minimum Wage

Increased inflation, loss of jobs, no actual effect on poverty or standard of living.

Labor Union Strategies

Strikes, picketing (protest), boycotts.

Right-to-Work Law

The kind of law that allows individuals to seek employment regardless of union affiliation or non-affiliation.

Right-to-work laws

This is a type of labor agreement where an employer can only hire employees who are already members of the union representing the workforce.

Closed Shop

This is a type of labor agreement where the employer agrees to either only hire labor union members or to require that any new employees who are not already union members become members.

Union Shop

This is a type of labor agreement where all employees, whether union members or not, contribute to the union's cost of representing them through a service fee.

Agency Shop

This 1938 law that established minimum wage, overtime pay requirements, recordkeeping, and child labor standards for most employees in private and public sector work.

The Federal Labor Standards Act

This 1935 law established the legal right for most private-sector workers to organize into unions and engage in collective bargaining.

The Wagner Act (National Labor Relations Act)

This 1932 law prohibited employers from denying employment on the basis of union membership (yellow-dog contracts).

The Norris-LeGuardia Act

This is one of the two key tools for managing the economy: the government's use of spending and taxation to influence the economy.

Fiscal Policy

This is one of the two key tools for managing the economy: the nation's central bank influences the money supply and credit conditions in the economy.

Monetary Policy

Use of gov't budgetary tools to reduce economic growth (inflation) via reduced gov't spending and/or increased taxation.

Contractionary Fiscal Policy

Use of gov't budgetary tools to stimulate economic growth via increased gov't spending and/or decreased taxation.

Expansionary Fiscal Policy

Economic policy actions taken to reduce the money supply by raising interest rate and/or raising reserve requirements for banks.

Contractionary Monetary Policy

Economic policy actions taken to increase the money supply by lowering interest rate and/or decreasing the reserve requirements for banks.

Expansionary Monetary Policy

This 1890 law prohibited any contract, combination, or conspiracy in restraint of trade or commerce, including attempts at monopolization.

the Sherman Antitrust Act

This 1914 law prohibited specific anti-competitive practices like price discrimination, exclusive dealing agreements, tying contracts, and corporate mergers that substantially lessen competition.

the Clayton Antitrust Act

This 1914 law established a gov't agency to prevent unfair methods of competition and unfair or deceptive acts or practices affecting commerce.

the Federal Trade Commission Act

This 1936 law prohibited price discrimination in interstate commerce, specifically for commodities. It was designed to protect small retailers from large chain stores.

the Robinson-Patman Act

This is the term for the average difference between the remuneration (earnings/payment) for different groups (gender/race/age, etc...) who are employed.

the Wage Gap

Traditional Economy: The use of scarce resources stems from ritual, habit, or custom. Economic decisions are made by ancestors or elders.

Traditional Economy

Market Economy: The use of scarce resources is dispersed throughout the society. Economic decisions are made by individuals.

Market Economy

Command Economy: The use of scarce resources is determined by a central authority. Economic decisions are made by the government.

Command Economy

Mixed Economy: The only kind of economic system that exists in the real world.

Mixed Economy

The only kind of economic system that exists in the real world. All other systems are theoretical ideals.

Socialism

Basic productive resources are gov't owned, the rest are privately owned. Gov't plans and directs allocation of resources in key industries.

Capitalism

Productive resources are privately owned and operated. Resources for production are obtained by individuals' desire for profit but the gov't may promote competition and provide public goods.

Communism

All productive resources are gov't owned and operated, centralized planning directs resources, and gov't makes all economic decisions.

Circular Flow Matrix

Model depicting the interchange of resources and products in a market economy.

Command elements in the US economy

Monopoly Laws, Emissions Standards, Quality Assurance Laws, Licenses.

Product Market

In the circular flow matrix, businesses sell goods and services.

Revenue

Money paid to businesses for goods and services.

Costs

Money paid by businesses for resources.

Income

Money paid to households for resources.

Spending

Money paid by households for goods and services.

Rent

Income paid for land.

Interest

Income paid for capital.

Wages

Income paid for labor.

Profits

Income paid for entrepreneurs.

Subsidies

Government money given as incentives to businesses.

Welfare

Government money given directly to households.

Taxes

Money given by businesses and households in exchange for public goods.

Monopoly

Market structure with only one seller of a particular product.

Oligopoly

Market structure in which a few very large sellers dominate an industry.

Monopolistic Competition

Market structure that has all the conditions of perfect competition except identical products.

Perfect Competition

A market structure characterized by a large number of well informed independent buyers and sellers who exchange identical products.

Benefits of competition

Higher quality goods and services, improved service, lower prices, increased innovation, more adaptive workforce.

Factors of production

In the circular flow matrix, households sell the factors of production.

Advantages of a command economy

Capable of quick, dramatic change; many basic public services available at little or no direct cost

Disadvantages of a command economy

Does not meet the needs and wants of consumers; Lacks effective incentives to get people to work; Requires large bureaucracy, which consumes resources; Has little flexibility for day to day change; Inefficient allocation of resources

Advantages of traditional economies

Sets forth clear economic roles for all members of the community; stable, predictable, and continuous life

Disadvantages of a traditional economy

Discourages new ideas; Stagnation and lack of progress; Lower standards of living

Advantages of market economies

Individual freedom; capable of gradual adjustment to change; lack of gov't interference; high variety of goods and services; higher degree of consumer satisfaction; higher standards of living

Disadvantages of market economies

Rewards only productive resources (not the young, old, or sick); does not produce public goods; workers and businesses face uncertainty from competition or change

Mercantilism

A state-driven economic system which emphasizes the build up of mineral wealth by means of a favorable balance of trade.

Feudalism

Economic system in which the nobles held lands from the monarch in exchange for military service and poor farmers exchanged labor to nobles for protection

Fascism

Sometimes characterized as 'far right,' an economic system characterized by total state control, with some private property, aimed at the supremacy of the nation over the individual and the world

Good

Tangible economic product that is useful, relatively scarce, transferable to others; used to satisfy wants and needs

Economics

social science dealing with the study of how people satisfy seemingly unlimited and competing wants with the careful use of scarce resources

Need

basic requirement for survival; includes food, clothing, and/or shelter

Scarcity

fundamental economic problem facing all societies that results from a combination of limited resources and people's virtually unlimited wants

Want

something we would like to have but it is not necessary for survival

Factors of Production

productive resources that make up the four categories of land, capital, labor, and entrepreneurship

Land

natural resources or 'gifts of nature' not created by human effort; one of four factors of production

Capital

tools, equipment, and factories used in the production of goods and services; one of four factors of production

Labor

people with all their abilities and efforts; one of the four factors of production, does not include the entrepreneur

Entrepreneur

risk-taking individual in search of profits who provides the original idea for a business; one of four factors of production

Gross Domestic Product

dollar value of all final goods, services, and structures produced within a country's national borders during a one-year period

Service

work or labor performed for someone; economic product that includes haircuts, home repairs, forms of entertainment

Value

worth of a good or service as determined by the market

Paradox of Value

apparent contradiction between the high value of a nonessential item and the low value of an essential item

Utility

ability or capacity of a good or service to be useful and give satisfaction to someone

Wealth

sum of tangible economic goods that are scarce, useful, and transferable from one person to another; excludes services

Economic Growth

increase in a nation's total output of goods and services over time

Productivity

measure of the amount of output produced with a given amount of productive factors; normally refers to labor, but can apply to all factors or production

Human Capital

sum of peoples' skills, abilities, health, and motivation

Specialization

division of work into a number of separate tasks to be performed by different workers

Opportunity Cost

the loss of the next best alternative use of money, time, or resources when one choice is made rather than another

Economic Model

simplified version of a complex concept or behavior expressed in the form of an equation, graph, or illustration

Cost-Benefit Analysis

way of thinking that compares the cost of an action to its benefits

Standard of Living

quality of life based on ownership of necessities and luxuries that make life easier

Commodity

Kind of money where items of value are traded for other items of roughly the same value