1. The U.S. Private an Public Sectors

2. Households All who live under the same roof Evolution of the household
In /3 of labor force worked on farms
Industrial revolution
Two earner households
Household Maximize Utility
116 million households
Utility-their level of satisfaction, happiness, and sense of well being

3. Firms
Economic unit former by profit seeking entrepreneur to produce goods and accepts risk of profit and loss
Evolution of the Firm
Firms higher specialists
Cottage industry
The Industrial Revolution
Everything under one roof
Increased productivity
Large scale factory production
Firms Maximize Profit
Profit= revenue-cost of production

4. The rest of the world International Trade Trade in raw material
Comparative advantage
Countries specialize
Trade has doubled sine % to 12%
Trade in raw material
Production vs consumption

5. Rules for a market Economy
Establishing Property Rights
Private property rights- individuals right to use resources as they choose or charge others to use it
Legal right to ownership
Intellectual Property rights
Rights to new ideas and inventions
Patent Law
Copyright-original expression and trademark- logo
Measurement and Safety
Government inspect weight devices
Food and Drug (FDA)

6. Market Competition and Natural Monopolies
Promoting Market Competition
Antitrust Laws
Regulating Natural Monopolies
Subway Service
Cheaper for one firm to serve market
Government owned or regulated monopolies are called public utilities

7. Growth and Stability of the Us Economy
Fiscal Policy
Using taxing and public spending to influence macro economic variables
Government stimulation of economy
Monetary Policy
Supply appropriate amount of money to stabilize fluctuations in economy
Promote long term healthy growth
Fed (federal reserve system) using interest rates

8. Public Goods Private goods characteristics
Rivalry- a product bought and consumed is no longer available to another buyer
Excludability- seller keeps people who don’t pay from obtaining the product or its benefits
Public goods characteristics
Nonrivalry-Everyone can simultaneously obtain the benefits of a public good
Nonexcludability- no effective way of excluding individuals from the benefits of a good
Free-rider problem
Private firms don’t produce public goods
Only government can finance through taxation

9. Private goods, Public goods, and in between
Natural Monopoly Goods
Nonrival and exclusive
TV, Subways
Open-Access Goods
Rival but non exclusive
Fish in the ocean
Regulated to sustain resource

10. Externalities
Externality- the costs or the benefits of a good or service are passed onto or “spill over to” someone other than the immediate buyer or seller
Negative Externalities
Cause supply-side market failures
Ex. Polluted air, Airport noise, foul smelling gas
Cost exceeds total benefit
Marginal cost lower than company paying for such a cost

11. Externalities Positive Externalities Government Intervention
Demand-side market failures
Willingness to pay for third parties receiving the benefit
Ex. vaccinations
Government Intervention
Government may step in if Externalities affect large numbers of people
Pass legislation, ex. Clear Air Act of 1990
TaxesSubsidies to buyers
Subsidies to producers
Government provisions, Ex polio vacines

12. Safety Net Income and Poverty
Why Household Income Differ
Median income- middle income of all household incomes
Education, ability, experience, # of earners
Official Poverty Rate
2011, household of 4 $22,350
43.6 million people in poverty
Poverty and Marital Status
One way to measure poverty
Female only, Male only, married couple
Highest teen pregnancy rate in the world

13. Programs to help the poor
Social Insurance programs
Social security, Medicare, unemployment
Income-assistance programs
Cash transfer programs (supplement retirement, help those with children)
In-kind transfer programs (Medicaid, vouchers)
Earned-income tax credit
Less or no taxes if below poverty line
Welfare reform
“welfare magnets”
Has increased employment