Chapter 2 homework Numbers 4, 8 and 12 Comparative Advantage Problem Now…the multiple choice answers.

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Presentation transcript:

Chapter 2 homework Numbers 4, 8 and 12 Comparative Advantage Problem Now…the multiple choice answers

Chapter 3 The American Economy in a Global Setting

“What Goes Around Comes Around” When firms prosper, so do households. When households struggle, so do firms. What are the economic forces that connect the well-being of households and firms?

The Circular Flow of Economic Activity Households and firms depends on the well-being of each other. This interaction is represented by the circular flow model.

Figure 3.1 The Circular Flow of Economic Activity

Households Is the typical family 2 parents, 2 children, and a dog???  TV depicts this family…. Characteristics:  One-fourth are headed by single individuals.  About half are headed by two parents.  They are aging.  They are geographically mobile.

Firms Firms take on many different forms:  Sole Proprietorships Only one owner  Partnerships Several owners pool their resources.  Corporations Sell ownership in the form of stock  Stockholders have no financial liability beyond the value of their stock

Figure 3.2 The Changing Pattern in U.S. Production Between 1947 and 2004 FIRE  Finance, insurance, and real estate

Changes in the U.S. Economy Major trends:  More service sector jobs These are not only cleaning and retail jobs  Legal services  Health services  Social services  Who buys from the product market? 62% comes from consumers 14% comes from other firms 16% comes from the government 8% comes from foreign firms, consumers, and government

Where does the money come from? Income from the resource market takes the form of payments to:  Labor  wages, salaries, and other compensation  Landowners  rent  Capital  interest  Entrepreneurial skill  profit Proprietor's income from partnerships Corporate profits from corporations

Figure 3.3 Sources of Income in the United States Economy in 2004

The Government Sector of the Economy Direct effects:  Adding to or taking from the flow of income Indirect effects:  Purchasing goods and resources in markets

Levels of Government and the Circular Flow Local Government  Collects property taxes  Provides parks, museums, schools, police protection State Government  Collects sales taxes  Provides roads and school systems Federal Government  Collects income taxes  Pays transfer payments  Provides national defense and interstate highways