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LONG-RUN AVERAGE COST: The per unit cost of producing a good or service in the long run when all inputs are variable. In other words, long-run total cost divided by the quantity of output produced. Long-run average cost is based on economies of scale (or increasing returns to scale) and diseconomies of scale (or decreasing returns to scale).
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Lesson 11: Circular Flow | Unit 3: Government
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Page: 15 of 22
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- The role the government sector plays in the economy and the circular flow through taxes and spending.
- How taxes divert household sector income to the government sector to pay for government purchases.
- That with the government sector included, the circular flow highlights the three basic uses of national income: consumption, saving, and taxes.
- Why government spending is divided into government purchases of GDP and transfer payments.
- Why the circular flow is interested in the net tax flow (taxes minus transfer payments) from households to government.
- When government does not collect enough taxes to pay for purchases, it can borrow through the financial markets.
- The Federal deficit, which is the borrowing by the federal government to make up the difference between taxes and spending.
- That federal borrowing is combined with state and local borrowing (or saving) for total government borrowing.
- Why the government sector diverts part of the circular flow, but does not necessarily change the total amount of GDP.
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ALLOCATION EFFECT A change in the allocation of resources caused by placing taxes on economic activity. By creating disincentives to produce, consume, or exchange, taxes generally alter resource allocations. The allocation effect is typically used when governments seek to discourage the production, consumption, or exchange of particular goods or activities that are deemed undesirable (such as tobacco use or pollution). This is one of two effects of taxation. The other (primary) is the revenue effect, which is the generation of revenue used to finance government operations.
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BROWN PRAGMATOX
[What's This?]
Today, you are likely to spend a great deal of time at a going out of business sale looking to buy either a large, stuffed giraffe or a birthday greeting card for your aunt. Be on the lookout for strangers with large satchels of used undergarments.
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This isn't me! What am I?
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Al Capone's business card said he was a used furniture dealer.
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"We succeed in enterprises (that) demand the positive qualities we possess, but we excel in those (that) can also make use of our defects." -- Alexis de Tocqueville, Statesman
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FTC
Federal Trade Commission
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