Economics (Module 3)

Sole Proprietorship

A business owned by one person.

Partnership

A business owned by two or more people who share the firm's profits and losses - common with many professionals (doctors, lawyers, accountants).

Simplicity Principle

A fair tax is easy to understand

The chance of losing money on an investment is referred to as _______.

Risk

Consumption is the economic term for _____________.

Satisfaction

The idea that a tax system that is too complicated for the average person to understand is not fair is based on the ______ standard.

Simplicity

Specialization

Situation in which people produce a more narrow range of goods & services than they consume.

Which of the following is NOT a state or local tax?

Social Security or FICA tax

A type of business organization that is owned by one person who gets all the profit of the business but assumes all of the risk is a

Sole Proprietorship

A situation in which people produce a narrower range of goods and services than what they consume is referred to as _____.

Specialization

A piece of ownership in a company like McDonald's, IBM, Walmart, or Microsoft is a called a share of _________________________.

Stock

Regressive Tax

Takes a larger percentage from people in lower income groups (sales tax).

Efficiency Principle

Tax system should provide incentives to optimal rate and mix of output.

People do not like to pay taxes, according to economists, because of all of the following EXCEPT

The benefits of paying taxes are obvious while the costs are harder to measure.

A tax system can provide incentives to individual consumers and producers.

True

An advantage of a sole proprietorship is keeping all profits.

True

Market failure is the overproduction or underproduction of some goods and services due to producers and/or consumers not having to bear the full costs.

True

Someone who enjoys the benefits of a good or service without paying any of the costs is referred to by economist as a free-rider.

True

The amount of output produced per unit of input used is referred to as productivity.

True

A tax that takes a larger percentage of income as it rises is referred to as a _____ tax and a tax that takes a larger percentage of icome from lower income groups than higher income ones is referred to as a _____ tax.

progressive; regressive

When goods are not excludable

the good will be produced as a private good but not as a public good.

Reasons Division of Labor increases output

-Workers who specialize can come up with better methods and tools to use in production. -Workers get better at jobs when they get to specialize. -Time is saved when workers do not have to switch to other tasks.

The principle that taxes should be based on who can best afford to pay is the _____ principle.

Ability to pay

Father of Capitalism

Adam Smith

______, the author of The Wealth of Nations and the "Father of Capitalism", wrote extensively about the benefits of division of labor.

Adam Smith

Productivity

Amount of output produced per unit of input.

Ability to Pay Principle

Belief that people should be taxed based not on benefits received, but ability to pay.

A gas tax imposed by some states in which those who use the roads more pay more to maintain them is based on the _____ principle.

Benefits Receive

A type of business organization that is treated as a legal person and whose owners (shareholders) enjoy limited liability is a

Corporation

The amount of output produced per unit of input used is referred to as ______.

Productivity

Unlimited Liability

Disadvantage of both sole proprietorships and partnerships - you may be responsible for losses beyond your investment in the company.

_____ of Labor - workers perform only one step or a few steps in a larger production process.

Division

An arrangement in which workers perform only one step or a few steps in a larger production process is called _____.

Division of Labor

Advantages of Corporation

Easy transfer of ownership; continuity of existence; access to greater amounts of financial capital.

Equitable

Fair

A piece of ownership in a company like McDonald's, IBM, Walmart, or Microsoft is a called a share of liability.

False

An arrangement in which workers perform only one step or a few steps in a larger production process is called specialization.

False

Consumers seek to decrease the utility of competing consumers.

False

It is easy to come to agreement about what is a fair tax system once everyone understands the four standards (ability to pay, efficiency, simplicity, and benefits received).

False

The principle that taxes should be based on who can best afford to pay is the benefits received principle.

False

His assembly line methods made automobiles more affordable.

Ford

We expect the ______________ to play a role in correcting market failures like pollution.

Government

The man most often associated with division of labor is ______, who introduced a moving assembly line in automobile production in 1913.

Henry Ford

Limited Liability

Huge advantage of corporations - you can only lose what you invest and no more!

Progressive Tax

Larger percentage of income taken from higher income groups.

Corporation

Legal "person"; business owned by shareholders.

Which of the following is NOT an advantage of a sole proprietorship?

Limite Liability

Disadvantages of a Corporation

Loss of control of business and more difficult to organize.

Advantages of Sole Proprietorship

Owner keeps all profits and can control the business.

A business organization owned by two or more people who share in the company's profits and losses, but who must incur unlimited liability is a

Partnership

Two or more individuals combining to form a business is known as a

Partnership

Benefits Received Principle

Payment based on benefits to tax payer - gasoline tax is an example.

Henry Ford is often associated with the ___________________ and introduced a moving assembly line in automobile production in 1913.

division of labor