Download Economic Activity and Productivity

Economic Activity
and Productivity
 To the economist, a market is a location or situation
where buyers and sellers exchange an economic
product
 Markets may be local, regional, national, or global
 The flow of resources, goods and services, and
money in a market system between the groups of
economic decision makers is circular
 Economists use the circular flow diagram (an
economic model) to illustrate how the market system
works (look at the model on page 429 of your online
textbook)
Groups of Economic Decision Makers
1. The consumer sector
 Earn their income in factor markets
 Workers earn wages, salaries, tips in exchange




of their labor
People who own land can loan it out in
exchange for rent (income)
People who own capital exchange it for
interest
Individuals receive their incomes and spend it
in product markets
Purchases about 2/3 of all output (GDP)
2. The business sector




Receives payments in the product markets where
they sell goods and services to consumers
Use the payments to pay for natural resources,
labor, and capital they use
The resources are then used to manufacture
additional products that are sold in product
markets
Usually consumes about 15 to 20 percent of GDP
 The business sector purchases some of the output it
produces-primarily capital goods- so that it can
continue to produce more goods and services
-these purchases include items like tools, factories,
and other goods needed for current production
3.





The Government Sector
Consists of all three levels of government (local, state,
and national)
Produces goods and services (transportation, housing,
education, health, etc) and purchases productive input
in the factor markets
Receives revenue for the services that it sells (bus fare,
postage stamps, etc.) but the total costs of government
services is seldom covered by the fees alone and
receives most of its revenue from taxes
Revenue is used to purchase final goods and services in
the product markets (schools buy textbooks)
Purchases apx 20% of the GDP
4. The foreign sector




Represents all the countries in the world
The United States sells products to, and purchases
products from other countries
The value of goods and services that the US sells to
other countries tends to offset the purchases that
the US makes from other countries
Less than 4% of the GDP
Productivity and Economic Growth
 Economic growth occurs when a nation’s total output
of goods and services increases over time
 The circular flow becomes larger with more factors of
production, goods, and services flowing one
direction, and more payments flowing in the
opposite direction
 Economic growth is important because it increases
people’s standard of living
Create a Circular Flow Chart
You will create an individual product and will create a
Circular Flow Chart that goes along with it. There
should be eight arrows and the meaning of the arrows
should be listed.
You will have to answer the following question:
“What is the difference between product markets
and factor markets? Explain”
Productivity
 Everyone benefits when scarce resources are used
efficiently.
 Productivity goes up whenever more output can be
produced with the same amount of inputs in the
same amount of time or when the same output can
be produced with less input
 Often discussed in terms of labor, but is applied to all
factors of production
 Business owners try to buy the most efficient capital
goods and farmers try to use the most fertile soil for
crops
Specialization
 When people, businesses, regions, and/or countries




concentrate on goods or services that they can
produce better than anyone else
Improves productivity
Nearly everyone depends on others to produce the
things that he or she consumes
Specialization occurs because we earn more money
and it is more efficient doing so
When people specialize, they are more productive
than by attemping to do many things
Division of Labor
 The breaking down of tasks into smaller,
separate tasks which are performed by
different workers
 A form of specialization that improves
productivity
 Makes use of different skills and abilities
Human Capital
 The sum of the skills, abilities, and motivation of




people
Increases productivity
Investments by government and businesses in
training, health care, and employee motivation tend
to increase the amount of production that takes place
with a given amount of labor
Employers are usually rewarded with higher-quality
products and increased profits
Workers often benefit from higher pay, better jobs,
and more satisfaction with their work
Economic Interdependence
 American economy displays because of specialization
 Americans are relied upon and rely on others to
provide goods and services that are consumed
 Events in one place can affect or impact other places
Example: dairy prices increase because government
subsidy is removed, ice cream price goes up
 Gain in productivity and income that results from
increased specialization usually offsets the costs
associated with the loss of self-sufficiency.