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Factors of Production Remember……. Goods: tangible products Services: work that is performed for someone else Factors of Production Resources necessary to produce goods and services- natural resources, labor, capital, and entrepreneurs Land - All natural resources use to produce goods and services - Includes all material found in nature - i.e. land, water, coal, forest, dirt, etc. Labor - human effort directed toward producing goods and services - both physical and mental efforts Capital - any human made resource that is used to produce other goods and services - physical capital: (capital good) human made objects that create other goods and services…..machinery, buildings, tools, etc. - save people time and money - Benefits of physical capital: extra time, more knowledge, more productivity - human capital: the knowledge and skills a worker gains through education and experience Entrepreneurs - ambitious leaders who decide how to combine land, labor, and capital resources to create new goods and services - individuals who start new businesses, introduce new products, and improve management techniques - use factors of production to produce new products Factors of Production Remember……. _____________: tangible products _____________: work that is performed for someone else Factors of Production Resources necessary to produce goods and services- ___________ ___________, _____________, _______________, and ___________________ _____________ - All natural resources use to produce goods and services - Includes all material found in ____________ - i.e. land, water, coal, forest, dirt, etc. ________________ - _________ effort directed toward producing goods and services - both ________________ and _______________ efforts Capital - any ____________ made ______________ that is used to produce other goods and services - physical capital: (capital good) _________________________________________ ______________________________________…..machinery, buildings, tools, etc. - save people _______________ and _______________ - Benefits of physical capital: extra ________, more ________________, more _______________________ - human capital: ___________________________________________________ __________________________________________________________________ Entrepreneurs - ambitious ____________________ who decide how to _______________ land, labor, and capital resources to create new _____________ and ________________ - individuals who start new __________________, introduce new _____________, and improve ________________________ techniques - use ____________________ _____ ___________________ to produce new products Gross Domestic Product - the total value, in dollars, of all of the final goods and services produced in a country during a single year - measures that size and success of the economy - the sale of used goods are NOT included in GDP - products used to make the final good or services are not included in GDP - to compute GDP: multiply the number of items produced and their average price - if this years GDP is higher than last yearsthe economy is expanding - if this years GDP is lower than last years the economy is declining - GDP is an important measure of standard of living: the quality of life based on the possession of necessities and luxuries that make life easier - When GDP grows faster than the population, there are more goods and services, on average, for each person to enjoy - GDP measures quantity NOT quality Economic Activity and Productivity, 19.2 The Circular Flow of Economic Activity - The flow of resources, goods, services, and money in a market system is circular The Consumer Sector - Consumers earn income in factor markets: the markets where productive resources are bought and sold. This is where workers earn wages, salaries, and tips in exchange for their labor. The Business Sector - Individuals spend their incomes in product markets: markets where producers offer goods and services for sale - Businesses receive payments in the product markets and use these payments to pay for natural resources, labor and capital The Government Sector - Made up of all 3 levels of government - Produces goods and services such as national defense, health, education, housing, transportation and purchases things from factor markets - Government receives revenue from services it sells (i.e. tuition, bus fares) but most comes from taxes - Uses revenue to purchase final goods and services from the product markets (i.e. schools purchase books, military purchases trucks) The Foreign Sector - we sell products to foreign countries and buy products from foreign countries Productivity and Economic Growth - Growth in our economy occurs when our total output of goods and services increases over time Productivity - A measure of the amount of output produced by a given amount of inputs in a specific period of time Specialization - Takes place when people, businesses, regions, and even countries concentrate on goods and services that they can produce better than anyone else - Specialization improves productivity - (i.e. you wouldn’t build a house yourself, you would use a carpenter, plumber, electrician, etc) Division of Labor - the breaking down of a job into separate, smaller, tasks, which are performed by different workers. - this is a form of specialization that improves productivity Human Capital - the sum of the skills, abilities, and motivation of people - make investment into employees to which increases productivity Economic Interdependence - we rely on others, and others rely on us to provide the goods and services that we consume - events in one nation impact other nations around the world