Transcript 4 factors of production

The American Economy
Today, you will need
notebook paper

Goods: tangible products that
satisfy our wants and needs.
•
4 FACTORS OF PRODUCTIONresources necessary to produce goods and
services.
1.
2.
3.
4.
Natural resources
Labor
Capital
Entrepreneurs
NATURAL RESOURCES
– Gifts of nature that
make production
possible.
• Fertile farmland
• Abundant
rainfall
• Forests
• minerals
LABOR
• Nation’s labor/WORK
force
• A.k.a. human
resources
• Physical and mental
efforts that people
contribute to the
production of goods
and services
CAPITAL Goods
• Capital goods!
• Tools and machinery
and buildings used to
make other products
• THEY ARE THE
RESULT OF
PRODUCTION
• OR MONEY
NEEDED TO
DEVELOP GOODS
ENTREPRENEURS
• Individuals who start
new business,
introduce new
products and improve
management
techniques
• Willing to take risks
• Use f.o.p. to produce
new products
THE GDP:
GROSS DOMESTIC PRODUCT
• WE can measure our economic success by
our income and ability to provide for
ourselves and our families
• The success of the OVERALL economy is
measured in a similar way.
• MEASURE OF Economy's SIZE IS THE
GDP!
GDP: Gross Domestic Product
• Total value in
DOLLARS, of all the
FINAL goods and
services produced in a
country during a
SINGLE year.
• FINAL good- ex: loaf
of bread sold to you.
• INTERMEDIATE
good- goes into
making a loaf of
bread:
– Wheat
– Sugar
– Honey….
• ARE NOT
COUNTED IN GDP!
GDP is an important way to measure the
STANDARD of LIVING
•
Standard of living– Quality of life based on
the possession of
necessities and luxuries
that make life easier.
– IF GDP grows faster
than the population,
there are more goods
and services for EACH
of us to enjoy!
QUANTITY vs. QUALITY
GDP measures: QUANTITY
• Quantity-GDP does not reflect
improvements in the quality of products.
• DIFFERNECE b/w a $1500 computer
purchased today, than a computer costing
the same amount a few years ago.
• FOCUS ON THE QUALITY OF
IMPROVMENT!
REVIEW: 4 FACTORS OF PRODUCTION:
1. natural resources
2. labor
– Physical and mental
3. Capital
4. Entrepreneurs
GDP based on __________?
QUANTITY
Section 2: Economic Activity and
Productivity
• GET A BOOK… look @
• Circular Flow Model: pg 429
• The flow of resources, goods and services and $$ in a
market system is CIRCULAR!
• Called a circular flow diagram.
Circular Flow: WHY IS IT
CIRCULAR?
1. Consumers earn income in FACTOR MARKET: the
market where productive resources are bought and
sold.
• Here we earn salaries in exchange for labor.
• People who own land can loan it out: RENT!
• People who own capital exchange it for interest
2. When those people get their income, they spend it in the
PRODUCT MARKET: the market where producers offer
goods and services for sale.
Government Sector:
•
Made up of all 3 levels of government:
1.
2.
3.
–
Federal
State
local.
It also can produce goods and services (ntl.defense,
education, housing, transportation)
– Public universities charge tuition, hospitals charge fees,
buses charge fares.
Foreign Sector
• Represents all the countries in the world
• Arrow at both ends b/c we SELL products to and BUY products
from other countries.
_________________________________
Define the following: pgs 430-432.
(7 minutes)
Productivity, specialization, division of labor, human capital and
economic interdependence.
Section 3: Capitalism and Free Enterprise
• Capitalism- where WE own most, if not all
means of production
• Free enterprise- businesses can compete
for profit with LITTLE gov’t inference
3 Terms used to describe the AMERICAN
economy:
CONSUMER SOVEREIGNTY
• WE ARE IMPORTANT B/C BUSINESS WANT TO
TRY TO PRODUCE THE PRODUCTS THAT WE
WANT
• CONSUMER IS KING or ruler of the market.
• ANOTHER FEATURE OF CAPITALISM:
– Private property rights- freedom to own and use or
dispose of own property as we choose
– Competition- struggle b/w buyers and sellers to get
best products at the LOWEST prices
SPREAD OF CAPITALISM
• Grew from medieval and
early Europe.
1. People should work for
economic gain
2. Gov’t should have a limited
role in economy
• ADAM SMITH- Scottish
economist and philosopher.
•
• Wealth of Nations (1776)
• Described basic principles
of economics for the 1st
time.
• From this we get:
– LAISSEZ-FAIRE economics:
“to let alone” gov’t
should not interfere in
marketplace.
Section 4: THE ECONOMY & YOU
• CONSUMER BILL OF RIGHTS:
– Right to a safe product
– Right to be informed
– Right to choose
– Right to be heard
– Right to redress (get $ from manufactures if product
causes physical or financial harm)
QUIZ TOMORROW•
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Goods
Services
Factors of production
4 factors of production
GDP
Standard of living
Circular flow model
Consumer sovereignty
• Private property rights
• Competition
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Productivity
Specialization
division of labor
human capital
economic
interdependence.