Studied by 5 people
Functional distribution of income
Illustrates how the nation’s income is distributed among wages, rents, interest, and profits
Personal distribution of income
How the nation’s total income is divided among individual households
Durable goods
Products with expected lives of 3 years or more
Non-durable goods
Products with expected lives of less than 3 years
Services
Work done for consumers by lawyers, barbers, doctors, etc.
Plant
Physical establishment that helps with manufacturing and distributing goods and services
Firm
Organization that uses resources to produce goods and services for profit
Industry
Group of firms that produces same, or similar, products
Sole proprietorship
Business owned + operated by 1 person
Partnership
Business owned + operated by 2+ people; share risks, profits, and losses
Corporation
Distinct/separate from individual stockholders that own it; run by hired managers
Stock
Share in the ownership of a corporation
Bond
Lends money to corporation; no corporate ownership for purchaser
Limited liability
Stockholders risk only what they paid for their stock; personal assets not at stake
Principal-agent problem
Interests of people managing the corporation (agents) and of the owners (principals) don’t always coincide
Monopoly
Single seller controls an industry
Externality
Some of the costs or benefits of a good “spill over” to 3rd parties that aren’t the buyer or seller
Negative externalities
Production or consumption costs that affect 3rd parties without compensation
Private goods
________- Produced through competitive market system; rivalry + excludability.
Positive externalities
Production or consumption benefits that are enjoyed by 3rd parties
Public goods
Everyone can simultaneously obtain benefits; one person’s benefit does not reduce benefits available to others
Free-rider problem
People can receive benefits from a public good w/o paying for it
Quasi-public goods
Government provides public goods and services that could include exclusion (could be provided by private firms)
Government purchases
Products purchased directly absorb resources + are part of domestic output
Transfer payments
Don’t directly absorb resources or create output; recipients don’t contribute to domestic
Personal income tax
Levied on taxable income
Marginal tax rate
Rate at which the tax is paid on each additional unit of taxable income
Average tax rate
Total tax paid divided by total taxable income
Payroll taxes
Taxes based on wages + salaries used to finance compulsory federal programs
Corporate income tax
Levied on a corporation’s profit
Sales and excise taxes
Taxes on commodities or purchases
Property taxes
Make up 72% of local governments’ tax revenue
Note 
Flashcard (26)