2.1: Describe how the interdependence of both households and firms is affected by trade, exchange, money, and banking

Examples

Chile Pepper, Chile Pepper Customer

Sprout's, Sprout's Customer

Barber, Person getting their hair cut

Uber Driver, Uber Passenger

Definitions

The Product Market-

The “place” where goods and services produced by businesses are sold to households.

The Resource (Factor) Market-

The “place” where resources (land, labor, capital, and entrepreneurship) are sold to businesses.

Definitions

Private Sector- Part of the economy that is run by individuals and businesses

Public Sector- Part of the economy that is controlled by the government

Factor Payments- Payment for the factors of production, namely rent, wages, interest, and profit

Transfer Payments- When the government redistributes income (ex: welfare, social security)

Subsidies- Government payments to businesses

Review

1. Do Individuals Supply or Demand?

2. Do Businesses Supply or Demand?

3. Who demands in the product market?

4. Who supplies in the product market?

Review

Both

Both

Individuals and the Government

Businesses

Examples of Risk

Failures:

Urban Sombrero

Successes:

Chobani

Examples of Risk

Elements of Business Operation

Expenses

Advertising

Record Keeping

Risk

Sole Proprietorship

business owned and operated by one person

Example:

Cafecito

Sweet Doce Brazil

Catherines Cupcakes

Partnerships

business that two or more individuals own and operate

Example:

Sunkissed Coffee

Medical, Real Estate, Legal, Marketing, Architecture/Engineering

Corporation

type of business organization owned by many people but treated by law as though it were a person; it can own property, pay taxes, make contracts, and so on.

Example:

Walmart, Coca-Cola, Pepsico

Franchises

Contract in which one business (the franchiser) sells to another business (the franchisee) the right to use the franchier's name and sell its products

Examples:

McDonald's, Wendy's, CrossFit, etc.

Credit

Definition

Receipt of money either directly or indirectly to buy goods and services in the present with the promise to pay for them in the future.

Credit

PRINCIPLE=AMOUNT ORIGINALLY BORROWED

INTEREST=AMOUNT OWED FOR BORROWING

Installment Debt

type of load repaid with equal payments, or installments, over a specific period of time.

Installment Debt

Financial Institutions

Main Function to accept deposits, lend money, and transfer funds among banks, individuals, and businesses

Financial Institutions

Depository institution that accepts deposits and lends money

Commercial Banks

Savings and Loan Associations

Savings Banks

Credit Unions

Depository institution originally set up to serve small savers overlooked by commercial banks

Depository institution owned and operated by its members to provide savings accounts and low-interest loans only to its members

Charge Accounts

credit extended to a consumer allowing the consumer to buy goods or services from a particular company and to pay for them later

Charge Accounts

Regular Charge Accounts

30 Day Charge with a Credit Limit ($500)

Revolving Charge Accounts

Not limited by 30 days or requirement to pay previous charge completely

Installment Charge Accounts

Major items such as sofas, televisions, computers paid through installments, ownership at the end

Credit Cards vs Debit Cards

Credit Card: Charge Account that can be used at any store

Debit Card: Cashless purchase straight from your checking account.

Finance Charges and APR

Finance Charge: Cost of credit expressed monthly in dollars and cents

APR (Annual Percentage Rate): Cost of credit expressed as a yearly percentage

Credit Rating

Credit Rating: Rating of the risk involved in lending money to a specific person or business

Taken into Account:

Capacity to Pay

Character

Collateral

Secured Loans

Unsecured Loans

Securities Markets

In the United States, a security is a tradable financial asset of any kind. Securities are broadly categorized into:

debt securities (e.g., bonds)

equity securities (e.g., common stocks)

derivatives (e.g., forwards, futures, options and swaps).

Regulation of Consumer Credit

pg 103

• Truth in Lending Act
• Fair Credit Reporting Act
• Equal Credit Opportunity Act
• Fair Credit Billing Act
• Fair Debt Collection Practices Act

Personal Bankruptcy

If you are massively in debt there is an option which has its benifits and costs.

Declaring personal bankruptcy through an approved bankruptcy court will cause what you own to be distributed amongst your creditors. Not all the debt is repaid.

Taxes still have to be paid.

Bankruptcy appears on your credit rating for 10 years, making it near impossible to get a loan/ reestablish credit.

Federal Agencies and Consumerism

pg 74

• USAgov
• Federal Trade Commission
• Consumer Product Safety Commission
• Government Printing Office
• U.S. Postal Service
• U.S. Department of Agriculture
• Bureau of Consumer Protection
• Food and Drug Administration
• National Highway Traffic Safety Administration