1. Chapter 4 Presentation 1 The US Economy: Private and Public Sectors

2. Private v. Public Sector Private Sector = households and businesses Public Sector = Government

3. Functional Distribution of Income Indicates how the nation’s earned income is divided among wages, rents, interest, and profits Ex- wages are paid to labor Rents and interest are paid to resource owners Profits paid to business owners

4. Households as Income Receivers Functional Distribution of Income-2005 Wages & Salaries Rents Interest Proprietor’s Income Corporate Profits Income By Function Performed National Income Received (Percent) 0 10 20 30 40 50 60 70 71% 1% 5% 9% 14% Source: Bureau of Economic Analysis

5. Personal Distribution of Income Show how the nation’s money income is divided among individual households

6. Households as Income Receivers Personal Distribution of Income-2004 Lowest 20% Second 20% Middle 20% Fourth 20% Highest 20% Income Group (Households) Personal Income Received (Percent) 0 10 20 30 40 50 60 3.4% 8.7% 14.7% 23.2% 50.1% Source: Bureau of the Census

7. Households as Spenders Households can dispose of their income in 3 ways: 1. Taxes 2. Personal Savings 3. Personal Consumption

8. Personal Taxes In 2005, US households paid $1210 billion in taxes out of incomes of $9912 B (12%) In 1941, Americans only paid 3% of total income on taxes

9. Personal Savings Savings are the part of after-tax income that is not spent ***income that goes into bank accounts, stocks, bonds, mutual funds, etc. On avg. Americans save 3% of income

10. Personal Consumption $$ spent on goods and services 12% on durable goods-goods that are expected to last > 3 yrs (cars, furniture) 29% on nondurable goods- last < 3 yrs (clothing, food) 59% on services- work done by lawyers, barbers etc.

11. Plant A physical establishment- factory, farms, mines, store or warehouse- makes and/or distributes G/S

12. Firm A business organization that owns and operates plants Some firms operate 1 plant and others operate several

13. Industry A group of firms that produce the same, or similar products

14. Vertical and Horizontal Integration Vertical- own all the means of producing the product Ex- Shell owns the mines, refineries, trucks and gas stations Horizontal- attempting to take over competitive firms Ex- Cingular and AT&T

15. Conglomerates Firms that have plants that produce products in several different industries Ex- Pfizer makes medicines (Lipitor), chewing gum (Trident/Dentyne), and Razors (Schick)

16. Legal Forms of Businesses 1. Sole Proprietorship- owned and operated by 1 person 2. Partnership- 2 or more owners w/ shared financial investment and risks 3. Corporations- a legal entity (“person”) chartered by state or local governments that is separate from the owners

17. Legal Forms of Business Domestic Output by Business Type Percentage of FirmsPercentage of Sales Sole Proprietorships Partnerships Corporations Sole Proprietorships Partnerships Corporations 72% 8% 20% 5% 11% 84% Source: U. S. Census Bureau

18. Advantages of Corporations 1. Easy to raise funds-through sale of stocks (shares of ownership in the company) and bonds (a loan to the company w/ future repayment & interest) 2. Limited Liability- cannot sue the individual owners, only the company 3. Ease of expansion 4. Ability to hire specialists