Every economy must solve three main coordination problems:

• What, and how much to produce

• How to produce it

• For whom to produce it

achieve greater levels of production than they could otherwise

A table that lists a choice’s opportunity costs by summarizing what alternative outputs you can achieve with your inputs.

what you put into a production process to achieve an output

A curve measuring the maximum combination of outputs that can be obtained from a given number of inputs

Production possibility curve demonstrates that:

There is a limit to what you can achieve, given the existing institutions, resources and technology.

Every choice you make has an opportunity cost.  You can get more of something only by losing something else.

an economic policy of leaving coordination

There are three basic forms of business organization

• The sole proprietorship

• The partnership

• The corporation

SOLE PROPRIETORSHIP

• Has one owner

• Approximately 75% of all business in America

• All responsibility for providing land, labor, and capital, that is, to provide any raw materials, human input, and capital, goods, is upon the owner of the business

• The owner of the business is inseperable from the legal and financial obligations of the business

• The owner assumes virtually unlimited personal liability, the big advantage is profits are only taxed once

PARTNERSHIP

• 2 or more owners

• 7% of all businesses

• Similar to sole proprietorship except two or more people agree, orally, or in writing to divide the burden and the profits

CORPORATION

• Can have a single, or multiple owners, but the owners are legally removed from the business

• Approximately 18% of all businesses

• A corporation is a legal entity, a legal “person” with certain rights and priveledges, and is created typically through a charter

• Limited liability is one of the advantages “inc” or “ltd”

• The tax structure rate of a corporation can be lower than that of personal income tax, but the corporation is subject to double taxation

CORPORATE RIGHTS

A corporation is a creature created law; it is a legal entity, like a person that exists apart from its shareholders.  It has the right to have

1. A corporate name

2. Contracts in its own name

3. Buy and sell property

4. Sue and be sued

5. Protection under the fifth and partial protection under the fourteenth amendments

A corporation must have a license to do business in any state other than the state where it is

“piercing the corporate veil.”

1. created by the people or government for political or governmental purposes.  Cities, towns, counties and school districts are public corporations.  Sovereign immunity

TAX ADVANTAGES PROFESSIONAL INC

1. A professional corporation allows the corporation to deduct contributions to qualified pension plans up to 15% for one plan, 25% for two plans

2. Qualified pension plans can require an employee to forfeit all or part of his contribution to the plan if he leaves the plan at too early a date

3. Corporations may have a plan providing payments to sick or disabled employeses which is tax free income for the employee up to $100 per week

4. Corporate tax structure can be lower than personal income tax structure

5. The corporation may reimburse employees and shareholders for medical expenses

6. Only 30% of the dividends of corporate owned stocks of other corporations are required to be reported as income

The 3 main ways coroprations receive financial capital that they require is through:

• BONDS

• PREFERRED STOCKS

COMMON STOCKS

the ability of one group to have an advantage over another group

Important shift factors of demand include:

1. Society’s income

2. The price of other goods

3. Tastes

4. Expectations

5. Taxes on and subsidies to consumers

Shift factors of supply:

• Price of inputs (supply falls when price of inputs rises)

• Technology (advances in technology increases supply)

• Expectations

• Taxes and subsidies (increase supply, taxes decrease)

the price of one country’s currency in terms of another’s currency

Floor < equilibrium is good

a wage necessary to support a family at or above the federally determined poverty line

In third party payer markets, the person who receives the good differs from the person paying for the good

Marginal cost is the slope of the total cost curve

A time period when a company can vary its capacity; and thus can vary its output by committing and developing new land, labor and capital as well as using that which is already committed and developed

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1. The ATC and the AVC come very close as output increases

2. STC & TVC are flattest at the point where MC is lowest.

3. MC cuts ATC and AVC from below at their low point.

• A large number of firms, none of which affects the market price

• Identical products

• Independent operations

• Freedom to leave or enter the market

PURE MONOPOLY

• One firm is the industry, i.e. one firm produces all units of a product, for which there is no close substitute

In pure competition, if MR equals a straight line then AR equals the same straight line***

If AC is greater than AR, it does not pay to produce

If AC is less than AR then more firms will try to enter the market

Macroeconomics is the study of the aggregate moods of the economy, with specific focus on issues associated with those moods:  Growth, business cycles, unemployment, and inflation.

Per capita real output is real GDP divided by the total population.  Output per person is an important measure of growth because, even if total output is increasing the population may be growing faster so per capita real output would be falling.

A business cycle is the upward or downward movement of economic activity, or real GDP, that occurs around the growth trend.

Sometimes the courts will disregard the legal personage of the corporation.  Such regard is referred to as piercing the corporate veil.

A corporation tries to perform any act beyond its articulate powers, known as ultra vires.

Public corporations- created by the people or government for political or governmental purposes.

Three primary relationships exist with cost curves.  They are

                The ATC and the AVC come very close as output increases

                STC and TVC are flattest at the point where MC is lowest*

                MC cuts ATC and AVC from below at their low point

Quality bias:  A good today is seldom identical to a good yesterday.  Adjustments must be made for these changes and they are seldom perfect.

New product bias-A fixed basket of goods leaves no room for the introduction of new products.

Ever since WW2 consumers have shifted consumption toward discount purchases.

The real amount is the nominal amount divided by the price index.  It is the nominal amount adjusted for inflation.  (%change in real output = % change in nominal output – Inflation )

When an individual sets a price for a good or labor, they are actually setting a relative price relative to other prices in the economy.

Unexpected inflation is inflation that surprises people. 

PPC demonstrates that

There is a limit to what you can achieve given the existing institutions, resources, and technology.

Every choice you make has an opportunity cost.  You can get more of something only by giving up something else.

As more and more of a variable is added to a fixed variable, the initial cost increases will decline until some point, known as the point of diminishing marginal costs, after which further additions of the variable will result in larger increases in cost for each additional unit.

when there is a small number of firms, products can be different or identical, and a large capital investment is required.  Examples would be automakers.  GMC, Ford

In pure competition, if MR equals a straight line then AR equals the same straight line.

The four phases of the business cycle are

The peak

                The downturn

                The trough

                The upturn

Economists have developed a set of signs that indicate when a recession is about to occur and when the economy is in one.  These leading indicators include:

• Average workweek for production workers in manufacturing

• Average weekly claims for unemployment insurance

• Manufacturers’ new orders for consumer goods and materials

• Vendor performance, measured as a percentage of companies reporting slower deliveries from suppliers

• Index of consumer expectations

• New orders for nondefense capital goods

• Number of new building permits issued for private housing units

• Stock prices- 500 common stocks

• Interest rate spread- 10 year government bond less federal funds rate

• Money supply

The target rate of unemployment is the lowest sustainable rate of unemployment that policy makers believe is achievable given existing conditions.  Most economists place the target rate of unemployment somewhere around 5%

unemployment caused by people entering the job market and people quitting a job just long enough to look for and find another one. 

Trailing P/E ratio should be above P/E

Inflation is a continual rise in the price level