The Market System
1. Consumer sovereignty :
The authority of consumers to determine what is produced through their purchases of goods and services
2. Profit and the allocation of resources :
An individual with entrepreneurial ability aims to earn a profit by renting land, hiring labor, and using capital to produce goods or services that can be sold for more than the sum of rent, wages, and interest.
If the potential profit turns into loss, the entrepreneur may stop buying resources and turn to some project.
The resources used in the losing operation would then be available for use in an activity where they would be more highly valued.
3. The determination of income :
Your income determines your ability to pay or obtained by selling the services of resources.
Services : Labor ---------------------> Income : Wage rate or Salary
Capital ---------------------> Interest
Land ---------------------> Rent
Entrepreneur ----------------> Profit
Households :
One or more persons who occupy a unit of housing
1 . Household spending :
Consumption or consumer spending
Business Firms :
Business organization controlled by a single management
Forms of business organizations
Firms : Company, Enterprise, and Business
1. Forms of business organization :
- Sole proprietorship :
A business own by one person, who receives all the profits and is responsible for all the debts incurred by the business
- Partnership :
A business with two or more owners who share the firm’s profits and losses
- Corporation :
A legal entity owned by shareholders whose liability for the firm’s losses is limited to the value stock they own
* Multinational business : a firm that owns and operates producing units in foreign countries
2. Business spending :
Investment or spending on capital goods to be used in producing goods and services
The International Sector
1. Types of countries :
- The industrial countries :
Particularly the major economic power like the United States, Germany, and Japan, are forced to pay close attention to each other’s economic policies
- The developing countries :
Provide a different set of issues for the United States from that posed by the industrial countries
- Import : products that a country buys from other countries
- Export : products that a country sells to other countries
2. International – Sector Spending :
- Trade surplus : the situation that exists when imports are less than exports
- Trade deficit : the situation that exists when imports exceed exports
- Net export : the difference between the value of exports and the value of imports
Linking the Sectors
1. Households and firm :
2. Households, Firms, and the International Sector :
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