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October 16, 2018 

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INJECTION-LEAKAGE MODEL: A model used in Keynesian economics based on the equality of non-consumption expenditures (or injections) and non-consumption uses of income (leakages). On one side of the equality is saving, taxes, and imports -- the non-consumption leakages. On the other side of the equality is investment, government purchases, and exports -- the non-consumption injections. The injection-leakage model provides an alternative to the Keynesian cross for identifying equilibrium aggregate output.

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FIRM:

An organization that combines scarce resources for the production and supply of goods and services. The firm is used by entrepreneurs to bring together otherwise idle resources. The term firm is often used synonymously with the business, enterprise, or company. If there is a difference, a firm is functionally defined and need not be a typical for-profit business. A firm can be profit oriented, nonprofit, privately owned, or government controlled.
The key role played by a firm is the production of output using scarce resources. Firms are the means through which society transforms less satisfying resources into more satisfying goods and services. If firms do not do this deed, then something else will. While the alternative might have a different name (call it a "zorph"), it would functionally operate as a firm.

Institutionalizing Entrepreneurship

A firm (or zorph) provides the institutional structure used by entrepreneurship to organize the production. Entrepreneurship undertakes the risk of bringing together the other factors of production and engaging in production. A firm provides focus and often legal standing to this process.

The overarching motivation of entrepreneurship oft is, but need not be, the pursuit of profit. The entrepreneur organizing the production might be primarily interested in pursuing charitable works or improving the operation of government. In such cases, the result is a nonprofit firm or government enterprise.

Profit Seeking Firms

How about an example or three of standard business firms?
  • The Wacky Willy Company is an excellent example of a firm. This corporation was formed by William J. Wackowski, an aspiring entrepreneur who had the dream of putting a stuffed tarantula in every baby's crib and for every toddler to cling lovingly to a stuffed armadillo. Mr. Wackowski (Wild Bill) formed The Wacky Willy Company to make this dream a reality. The Wacky Willy Company, is a modest operation, but it is the means used by Willy the Wackmeister to produce and distribute Stuffed Amigos, this firm provides the mechanism he uses to combine labor, capital, and raw materials needed to produce Stuffed Amigos.

  • Yet a firm need not be legally incorporated like The Wacky Willy Company. Phil Gardener grows zucchinis in his backyard. Phil's zucchini-grower business is also a firm. His firm, however, consists of him, making it a proprietorship. Phil also had a dream, a dream of growing the best zucchinis Shady Valley has ever seen. To implement this dream, Phil has a section of his backyard set aside for zucchini production. He purchases the necessary supplies from his local garden center, spends a few hours a day tending to his crop, then sells his produce upon harvest. His firm is NOT a corporation. It is nothing more than a guy who grows zucchinis. But it is a firm nonetheless.

  • At the opposite end of Phil's zucchini growing proprietorship lies OmniConglomerate, Inc. Like The Wacky Willy Company, OmniConglomerate is a certified corporation. However, unlike The Wacky Willy Company, OmniConglomerate produces more than a single good. In fact, OmniConglomerate is the parent firm overseeing the production of a multitude of different goods. OmniMotors produces cars, OmniCell is a wireless telephone company, OmniFoot manufactures athletic shoes, OmniHealth runs a chain of medical clinics, and the list goes on. OmniConglomerate is itself a firm, which owns and controls a score of other firms OmniMotors, OmniCell, and OmniFoot.

Not For Profit

Not all firms are motivated by profit. A couple of examples can serve to illustrate:
  • One example of a firm, falling in the nonprofit category, is provided by Madison Kunkleburgton. Madison, sensitive to the plight of pedestrians with foot ailments, formed a charitable organization to offer assistance to those in need. He acquired funding, collected donations, rented office space, and brought together some of the finest podiatrists available to study foot-related problems. His nonprofit firm (United Foot) provides a valuable service to thousands of needy pedestrians. However, unlike other firms such as The Wacky Willy Company, United Foot is not in pursuit of profit.

  • Another example of the not for profit variety of firm can be had by the Mayor of Shady Valley, Victor Thurgood. Looking for ways to generate more revenue, Mayor Thurgood enticed the City of Shady Valley to establish a casino and resort hotel. Although it operates like any casino found in Las Vegas or Atlantic City, this particular firm is owned by the government of Shady Valley. As such, it is not a "for profit" firm. While it does generate an excess of revenue over expenses (a lot of excess revenue), which is used by the city to pay for assorted public services, as a government-owned firm, this excess revenue is not technically considered profit.

<= FINANCIAL WEALTH, AGGREGATE EXPENDITURES DETERMINANTFIRM OBJECTIVES =>


Recommended Citation:

FIRM, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: October 16, 2018].


Check Out These Related Terms...

     | business | company | enterprise | legal business organizations | ownership liability | business objectives | profit maximization | natural selection | plant | factory | industry |


Or For A Little Background...

     | production | production cost | supply | entrepreneurship | microeconomics | private sector | institution |


And For Further Study...

     | business sector | business cycle | political views | corporate profits | second estate | free enterprise | government enterprises | laissez faire |


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