Chapter 3U.S. Private and Public Sectors

Section 1

The U.S. Private Sector3 groups of economics: Households, Firms

and the rest of the world. You grew up in a household.You have interacted with firms.(Subway, Wal-Mart, Home Depot)You know about the rest of the world.(Internet, CNN and Newspapers)

HouseholdHousehold- The most important economic

decision maker, consisting of all those who live under one roof.

Ex- Everyone who lives in your house, is part of the household.

Households Maximize UtilityUtility- The level of satisfaction from

consumption or sense of well-being.

Ex- If you have a well maintained yard, you are satisfied on how the yard looks and makes you feel batter about yourself.

Evolution of FirmFirm- A business unit or enterprise formed by

a profit-seeking entrepreneur who combines resources to produce goods and services.

Ex- Wal-Mart, Subway or any business that is for profit.

Industrial RevolutionDevelopment of the large-scale production

during the 18th century in Great Britain.

Ex- Cotton gin- Cotton gin helped make harvesting cotton easier, so more cotton was in demand, then factories where then created to keep up with demand.

Rules for a Market EconomySection 2Private Property Rights- Legal claim that

guarantees an owner the right to use a resource or to charge others for its use.

EX- If a store knew it could not catch thieves, it would not waste money on secret cameras. Since they can protect their goods, they have cameras.

EX- You would not work for someone if you knew they couldn’t pay you because their money keeps getting stolen.

Promotion Market CompetitionAntitrust Laws- Attempt to promote

competition and reduce anticompetitive behavior. These are enforced by the courts and government attorneys.

EX-The government will not allow one company to dominate a market. Coke is not permitted to be the only cola on the market, if they were, they would control the soda market.

Regulating Natural MonopoliesNatural Monopolies- One firm that can serve

the entire market at a lower per-unit cost than 2 or more firms. It is usually regulated by the government.

EX- Power company. If there is only one power company, the company can charge whatever it wanted. Since it is the only one, the government regulates the prices so they do not get too high.

Growth and Stability of the US EconomyFiscal Policy- The federal government’s use of

taxing and public spending to influence the national economy. When the economy slows down, the government steps in and helps “right the ship”.

EX- Inflation causes money to less valuable, the government steps in and lowers interest rates to help people able to afford things. (Houses)

Monetary PolicyMonetary Policy- The central bank’s attempt

to control the money supply to influence the national economy.EX- If too much money is printed, then it becomes less valuable, which causes inflation. If inflation gets too high, they raise interest rates to bring more money to the bank and have less circulating in the economy.

Public Goods and ExternalitiesSection 3Private Goods- Goods with two features: (1)

The amount consumed by one person is unavailable to others and (2)Non payers can easily be excluded.

EX- When you order pizza and your friends eat it, there are less pieces for you to eat because they ate YOUR pizza!

Public GoodsPublic Goods- Goods that, once produced, are

available to all, but non-payers are not easily excluded.

EX- Mosquito control. Trucks drive in the neighborhoods and spray. No one pays directly for it, but everyone benefits from it. They can’t discriminate.

Quasi-Public GoodsQuasi-Public Goods- Goods that, once

produced, are available to all, but non-tax payers are usually excluded.

EX- Cable TV- It is available to anyone who can afford it. You can’t get it for free unless you are stealing it. Usually involving “paying” for it.

Open Access GoodsOpen Access Goods- Goods that rival in

consumption but exclusion is costly.EX- Deer Huntin’- If you over hunt and area

and the deer are getting too thinned out, the government may step in and say that you can’t hunt there anymore to help replenish the deer in the area. Same with fishing.

Negative ExternalitiesNegative Externalities- By-products of

production or consumption that impose costs on third parties neither buyers nor sellers.

EX-Ozone Layer- People use aerosol cans. Not everyone uses them, but the shrinking of the Ozone effects us all.

Positive ExternalitiesPositive Externalities- By-products of

consumption or production that benefit 3rd parties, who are not buyers or sellers.

EX- Flu Shots- People who get Flu shots get them so they won’t get sick. If they don’t get sick, then there are less people with the Flu to get others sick.

Providing a Safety NetSection 4Median Income- The middle income when a

group of incomes is ranked from lowest to highest.

Ex- Middle- If you rank your 10 favorite cars from best to worst, the one in the middle is going to be your median. Also, remember the “Median” in the road, it is in the “middle” of the road.

Programs to help the poorSocial Insurance- Cash transfers for retirees,

the unemployed and others with a work history and a record of contributions to the program.

EX- Social Security- Paid monthly to people who are retired who paid into the program when they were in the workforce. Medicare is also example of Social Insurance.

Income-Assistance ProgramsIncome-Assistance Program- Government

programs that provide money and in-kind assistance to poor people.

EX- Welfare- People on welfare receive money from the government to help live while trying to get help. They also provide food and drinks as well. WIC is also another assistance program.