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Chapter 4
4-1 Distinguish between the functional and personal distribution of income. Which is being referred to in each of the following statements? A. “The combined share of wage income and proprietary income has remained remarkably stable at about 80 percent since the Second World War.” B. “The relative income of the richest households is higher today than in 1970.”
4-3 Distinguish clearly between a plant, a firm, and an industry. Contrast a vertically integrated firm, a horizontally integrated firm, and a conglomerate. Give an example of a horizontally integrated firm from which you have recently made a purchase.
4-4 What are the three major legal forms of business organization? Which form is the most prevalent in terms of numbers? Why do you think that is so? Which form is dominant in terms of total profits? What major advantages of this form of business organization gave rise to its dominance?
4-5 What is the principal-agent problem as it relates to managers and stockholders? How did firms try to solve it in the 1990s? In what way did the “solution” backfire on some firms?
4-6 Identify and briefly describe the 5 main economic functions of government. What function do you think is the most controversial? Why do you think it is controversial?
4-9 What are the two characteristics of public goods? Explain the significance of each for public provision as opposed to private provision. What is the free-rider problem as it relates to public goods? Is U.S. border patrol a public good or a private good? Why? How about satellite TV? Explain.
4-14 What is the most important source of revenue and the major type of expenditure at the Federal level? At the state level? At the local level?
4-16 What do economists mean when they refer to Social Security as a pay-as-you-go plan? What is the Social Security trust fund? What is the nature of the long-run fiscal imbalance in the Social Security retirement system? What are...