Chapter 5

An industry is best defined as a group of firms that produce identical or similar products.
A progressive tax is such that tax rates are higher the greater one’s income
The addition of government to the circular-flow model illustrates that government purchases resources in the resource market.provides services to businesses and households.purchases goods in the product market
The stabilization function of government involves government’s efforts to deal with the problems of substantial unemployment and rapid inflation.
The free-rider problem is that people will not voluntarily pay for something that they can obtain without paying.
The functional distribution of income refers to the distribution of income to basic resource classes, that is, wages, rents, interest, and profits.
The three most important sources of Federal tax revenue in order of descending importance are personal income, payroll, and corporate income taxes
The personal distribution of income refers to the way income is distributed among specific households or spending units.
An example of a public good is the war on terrorism
With respect to state finance sales and excise taxes are the major source of revenue and education is the major type of expenditure.
With respect to local finance property taxes are the basic source of revenue and education is the major type of expenditure.
As it relates to a public good, nonrivalry means that one person’s benefit from the good does not reduce the benefit available to others.
As it relates to corporations, the principal-agent problem is that the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).
Spillover benefits refer to benefits that accrue to parties other than the producer and buyer of a good.
Unlike a private good, a public good has benefits that are available to all, regardless of payment.
The major source of tax revenue for the Federal government is personal income taxes.
In corporations, owners are __________________ and managers are ________________. principals; agents.

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