General Terms
How is microeconomics different than macroeconomics?
Microeconomics focuses on the decisions of individuals and businesses, examining how they allocate resources and respond to changes in supply and demand.
Macroeconomics looks at the bigger picture, analyzing national trends, policies, and indicators like GDP, inflation, and unemployment.
Over the last 20 years in America, how have households changed?
There has been a decrease in the number of persons per households.
The number of U.S. persons per household has fallen from a 1970 peak of 3.1 to a record low of 2.5 in 2023, driven by millennials marrying later, empty-nester baby boomers, and fewer children. This shift has created 31.9 million "extra" bedrooms nationwide, significantly increasing the share of homes with guest rooms
True or False: To maximize economic well-being, a person should: follow the course of action that minimizes costs, regardless of the benefits.
False.
Economic well-being is maximized by maximizing net benefits (benefits minus costs), not merely by reducing expenses. Often, a higher-cost option provides significantly higher benefits, resulting in a better overall outcome.
Imagine a patient diagnosed with a severe form of cancer. There are two treatment options:
Option A (Chemotherapy): Cost $5,000, 20% success rate.
Option B (Targeted Immunotherapy): Cost $50,000, 80% success rate.
In this scenario, the high cost is justified because the value of the benefit (life, health, productivity) far exceeds the cost
What is a proprietorship?
A single owner business with an unlimited liability
What is an example of a horizontal merger?
Two independent hospitals merge with each other.
What is Social Security?
A U.S. federal social insurance program providing monthly benefits to retirees, disabled workers, and survivors of deceased workers. Funded by payroll taxes, it serves as a financial safety net for over 73 million Americans. The largest transfer program in the U.S.
Social Security provides retirement, disability, and survivor benefits funded by payroll taxes, generally requiring 40 credits (10 years of work) to qualify. Benefits are calculated on your highest 35 years of earnings, with full retirement age (FRA) at 66–67. Claiming at 62 reduces benefits; waiting until 70 maximizes them
Accounting for 50% to over 60% of total income, what is the largest source of personal income in the U.S.?
Wages, salaries, and other income derived from labor.
Consider how much healthcare costs are and spending on health services in the U.S.:
Medical Debt and Financial Instability
Healthcare is a unique "expense" because it often results in debt that persists long after the service is provided.
What is utility?
The satisfaction realized from consuming a good or service.
In healthcare, utility is often measured by the improvement in a patient’s health, quality of life, or longevity, rather than just monetary satisfaction
What are Limited Liability Companies (LLCs)?
Can be classified as a proprietorship, partnership, or corporation and protect their members with limited liability (remember with unlimited liability the owner's personal assets are subject to payment for business debts).
How do you explain what a vertical merger is?
When one business/corporation buys/acquires another company that helps with it's a supply chain.
A vertical merger occurs when two companies operating at different stages of the same industry's supply chain combine. It is a strategic move to control more of the production or distribution process, such as a manufacturer buying a supplier (backward integration) or a retailer (forward integration) to reduce costs and improve efficiency
In the U.S., most business revenue comes from which of three major forms of business?
Corporations
Top 10 largest by revenue (according to Yahoo Finance):
What is personal income?
The total income received by individuals, households, and non-profit institutions from all sources before the deduction of personal income taxes.
It represents the aggregate (total) amount of money available to people to spend, save, or pay taxes, reflecting their purchasing power and economic well-being
As of 2024–2025 data, the median personal income in the U.S. for individuals is roughly $45,140 per year. For full-time, year-round workers, this figure is higher, with median weekly earnings translating to over $60,000–$69,000 annually, depending on the data source and worker demographic
What is a durable good?
A product that has a useful lifetime of more than one year.
Examples:
Wheelchairs and Scooters: Mobility aids intended for long-term daily use.
CPAP machines: used to treat sleep apnea by providing continuous airflow.
Hospital beds: adjustable beds for home care.
Oxygen devices for providing oxygen therapy.
Crutches and walkers
Braces and orthopedic supports
False
The way we calculate the profit or loss for a business is to:
Subtract costs from revenue
What is a holding company?
A corporation that is formed to hold shares of stock in other corporations: Berkshire Hathaway is a premier example of a holding company, a corporation that does not produce goods or services itself but instead owns controlling shares of other companies (subsidiaries). Led by Warren Buffett, it uses a centralized, diversified structure to manage companies like GEICO, Dairy Queen, and BNSF Railway, reducing risk while managing diverse industries under one umbrella
Is this statement true?:
The average income of households with a head of over 65 years of age is less than the average income with a head in their late 20s through early 30s
Yes.
Median household income drops significantly with age. In 2025 data, 65-69 year olds had a median income of $58,776, dropping to $38,239 for those 75 and older
Is a bondholder an owner of a corporation?
No, a bondholder is a creditor, not an owner. While shareholders (stockholders) hold equity and own a portion of the company, bondholders lend money to the company in exchange for regular interest payments and the return of their principal, acting as lenders rather than owners
Example: A bondholder in healthcare: A Rochester area investor (individual or institutional) who purchases Rochester municipal revenue bonds issued by a Rochester or Monroe county on behalf of Rochester Regional Health
Scenarios
The Need: RGH wants to build a new $100 million emergency department but does not have the cash on hand.
The Issuer: RGH asks a local government entity (e.g., a city health authority) to issue municipal bonds to raise the funds.
The Bondholder (Investor): The investor buys $50,000 worth of these bonds, effectively lending $50,000 to the hospital project.
The Agreement: The hospital promises to pay the investor 4% interest annually and return her $50,000 principal in 10 years.
Repayment Source: These are revenue bonds, meaning the interest and principal paid to bondholders come exclusively from the revenue generated by the hospital (patient services, insurance payments) rather than tax revenue.
What is one characteristic of a corporation?
They have Limited Liability
True or False: Profit maximization is always more important to the management of a corporation than to an individual managing a proprietorship.
False
Expenditures must be allocated towards goods that have the lowest prices in order to maximize one's economic satisfaction. True or false
False. While consumers want to get the best value for their money, maximizing economic satisfaction (utility) does not require setting aside all expenditures towards the lowest-priced goods. Instead, consumers maximize satisfaction by balancing price with the utility gained from each item.
What is a cost and benefits item that should be considered when determining the well-being from holding a job?
The personal satisfaction from holding the job
The nonmonetary costs, such as long hours, of holding the job.
Example:
The Benefit: A hospital offers a self-scheduling system, allowing a Medical-Surgical RN to choose their own 12-hour shifts. This increases well-being by giving the nurse autonomy to balance work with family demands or school, reducing burnout.
The Cost: The same nurse may face the high-stress environment of that department (e.g., a high patient-to-nurse ratio), leading to physical exhaustion and exposure to infectious diseases.
Cost: Inadequate staffing causing physical and emotional fatigue.
Benefit: Access to paid time off (PTO) and health insurance, which helps secure long-term physical and financial health
Does maximizing economic well-being from earning an income require taking the job that pays more?
No. Economic well-being is a multidimensional concept that includes total satisfaction, time freedom, health, and stability, not just total income
What is the difference between preferred and common stock?
The dividends (payments) of preferred stockholders are paid prior to common stockholders' dividends (payments).
Assessing a company’s performance is challenging because actions that seem unprofitable today may be designed to build superior future market position