Transcript Chapter 19

Chapter 19
Objectives:
7.01, 7.04, 7.05, 7.06,
8.02, 8.03, 8.06, 9.01
Economic Resources
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Goods – a physical product
Services – like entertainment or lawn care
Factors of production: resources necessary to
produce goods/services
1. Natural Resources: ‘gifts of nature’
2. Labor: human resources
3. Capital: manufactured goods used to make other goods
and services (like a hammer)
4. Entrepreneurs: an individual who starts a new
business, introduces new products, improves
processes; are innovators and willing to take risks
Economic Resources
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Gross Domestic Product: a measure of the
economy’s size; the total value in dollars of
all the final goods and service produced in
a country during a single year
– Need to know the relative value of each good
– Used as an indicator of standard of living:
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Quality of life based on possession of necessities
and luxuries to make like easier
– Only measures quantity, not quality
Economic Resources
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Net Domestic Product: is the GDP
subtracted by the loss in value of capital
goods by depreciation
– Depreciation is the loss of value due to wear
and tear on a product
Economic Activity
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Market: the free and willing exchange of
goods and services between buyers and
sellers; not necessarily a place.
– Can be global, national, regional, or local
– Resources, goods, and services flow in a
circular pattern
– Market is made of different sectors
Economic Activity
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Consumer Sector:
– Consumers earn income in factor markets:
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Markets where productive resources are bought/sold
Earn wages, salaries, etc. for labor
Business Sector:
– Individuals spend income in product markets:
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Markets where producers offer goods/services for
sale
Businesses sell goods for payment and then use
that payment to buy resources, labor, capital.
Smaller than the consumer sector
Economic Activity
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Government Sector:
– Made of all levels of gov’t
– Gov’t buys productive resources from the factor
markets and goods/services from product
markets
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For example, military buys trucks, planes, & ships
– Gov’t also produces goods and services
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Public Universities, hospitals, transportation
– Usually the second largest sector
Economic Activity
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Foreign Sector:
– Every other country in the world
– We buy from and sell to the Foreign Sector
– Usually the smallest sector
Economic Growth
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Occurs when total output of goods/services
increases over time
– Productivity: efficient use of resources
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measure of amount of output produced by given
level of inputs in specific period of time
– Specialization: when people, businesses,
regions, & countries concentrate on goods or
services that they can produce better than
anyone else
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Increases productivity
Economic Growth
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Division of Labor: breaking down a job into
small tasks performed by different workers
– also improves productivity
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Human capital: Businesses invest in
people’s skills, abilities and motivation to
increase productivity
Economic Interdependence: because of
specialization people rely on each other
Capitalism
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Capitalism: an economic system in which
private citizens own and use the factors of
production in order to seek a profit.
Free enterprise: competition is allowed to
grow with minimal gov’t interference.
Thus America’s economy is a combination
of the two
Capitalism
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Factors helping capitalism to succeed:
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Markets
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Economic Freedom
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Connect the different sectors
Help determine prices
Consumer is “king” of the market
Can choose your occupation, what to buy, sell, etc.
You also have the freedom to fail
Private Property Rights:
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Freedom to own, use, or dispose of your property (without
interfering with others)
Gives people motivation to work hard and take care of property
Capitalism
– Competition
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The struggle between buyers and sellers to get the
best products at the lowest prices
Helps keep prices low, quality high
– Profit Motive
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Profit: the amount of money left over after all the
costs of production have been paid
A large factor in growth of free-enterprise
– Voluntary exchange
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the act of buyers and sellers freely/willingly engaging
in market transactions
The buyer and seller both believe they will profit
History of Capitalism
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Adam Smith
– Scottish philosopher and economist
– Wrote The Wealth of Nations (1776)
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Individuals, when left alone, work for their own selfinterest; they would be guided by an “invisible hand”
The basic principles of economics
– Laissez-faire economics based on book
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French phrase meaning “to let alone”
Means gov’t’s role is only to ensure free competition
– Many founding fathers influenced by book