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Bell Starter (Section 1) Key Terms Goods Services Factors of production Natural resources Labor Key Terms Capital Entrepreneur Gross Domestic Product (GDP) Standard of living ECONOMIC RESOURCES PRODUCTION OUTPUT OF U.S. AT BEGINNING OF 21ST CENTURY AT 10 TRILLION (30%) OF WORLD’S OUTPUT PRODUCTION COMES IN THE FORM OF GOODS AND SERVICES GOOD: BOOKS , CARS SERVICES: HAIRCUTS, HOME REPAIRS, CONCERTS TO MAKE GOODS AND SERVICES YOU MUST HAVE THE FOUR FACTORS OF PRODUCTION FOUR FACTORS OF PRODUCTION NATURAL RESOURCES COMES FROM NATURE FERTILE FIELDS, RAINFALL, FOREST, MINERAL DEPOSITS SCHOOLS—BUILT ON/WITH NATURAL RESOUCES HUMAN RESOURCES (LABOR) PHSYCIAL AND MENTAL WORK CAPITAL RESOURCES CAPITAL GOODS: UNIQUE BECAUSE THEY GO INTO MAKING ANOTHER PRODUCT AND ARE NOT COUNTED IN GDP TOOLS, MACHINERY ENTREPRENEURAL SKILLS NEW BUSINESSES, INTRODUCE NEW PRODUCTS FACTORY OF PRODUCTION ACTIVITY Natural Resources Human Resources Capital Goods Entrepreneur Gift of Nature Electricians Machinery New Model of Car GDP GROSS DOMESTIC PRODUCT TOTAL DOLLAR VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED IN A COUNTRY EACH YEAR Loaf of bread—sold to its user Goods that’s go into making-not counted Sales of used goods—not counted THIS IS HOW WE DETERMINE WHERE WE ARE IN THE BUSINESS CYCLE 2 QUARTERS OF GDP GOING DOWN 2 QUARTERS OF GDP GOING UP CALCULATING THE GDP NUMBER OF ALL FINAL GOODS AND SERVICES PRODUCED IN USA IN ONE YEAR NUMBER OF EACH THAT ARE PRODUCED LIST OF PRICES FOR EACH GOOD AND SERVICE PRODUCED CALCULATING THE GDP GDP = QUANTITY X PRICE AVERAGE OF EACH ITEM THEN ADD ALL TOGETHER 5 CARS AT 25000 (5 X 25000) = 4 BOATS AT 30000 (4 X 30000) = 10 MOTORCYCYES AT 500 (10X500)= COMPUTING GDP Final Goods And Services Goods: Automobiles Books Computers ----------------------Zippers Services: Advertising (minutes of) Babysitting (hours of) Car Washes (number of) __________ Zodiac Readings (number of) Gross Domestic Product: Quantity (in thousands) Average Price Value (in millions) 6,000 15,000 1,300 ________ 1,000 $28,000 25 1,700 _________ 2 $168,000 375 2,210 _________ 2 1,050,000 50,000 15,000 _________ 400 $1,000 5 10 _______ 10 $1,050,000 250 150 _________ 4 $10.2 trillion Bell Starter (Section 2) Factor Market Product Market Productivity Specialization Division of labor Economic interdependence Workers earn wages Factor or Product Market Banks earn interest Factor or Product Market Music stores sells CDs Factor or Product Market Landowners receive rent Factor or Product Market ECONOMIC ACTIVITY & PRODUCTIVITY CIRCULAR FLOW OF THE ECONOMY IS HOW PRODUCTS FLOW FROM ONE MARKET TO ANOTHER CIRCULAR FLOW MARKET ALLOWS BUYERS AND SELLERS TO EXCHANGE ECONOMIC PRODUCTS LOCAL, REGIONAL, NATIONAL, GOLBAL SECTOR ONE: THE CONSUMER COSUMERS, BUSINESSES, GOVERNMENT AND FOREIGN SECTOR EARN INCOME IN FACTOR MARKET (PLACE WHERE PRODUCTIVE RESOURCES ARE BOUGHT & SOLD WORKERS: EARN WAGES, SALERIES, & BENEFITS LANDOWNERS: EARN RENT CAPITAL INVESTORS EARN INTEREST SECTOR TWO: THE BUSINESS INDIVIDUALS RECEIVE THEIR INCOMES FROM THE FACTOR MARKET. THEY WILL SPEND $ (INCOMES) IN THE PRODUCT MARKETS. (WHERE PRODUCERS OFFER GOODS & SERVICES FOR SALE BUSINESS PURCHASE SOME OF ITS OWN OUTPUTS LIKE CAPITAL GOODS (COMPUTER) SECTOR THREE: GOVERNMENT ALL LEVELS (LOCAL, STATE, NATIONAL) PARTICIPATE IN MARKETS. SALES OF SERVICES ARE GOVERNMENT REVENUES BUT THEY ALWAYS NEED MORE SO THEY DO OTHER THINGS TAXATION PUBLIC UNIVERSITIES: TUITION CITY BUSES: FARES GOVERNMENT GOVERNMENT PURCHASES IN PRODUCT MARKET TO BUY THINGS LIKE: PURCHASE OF BOOKS, BUSES, SHIPS, PLANES GOVERNMENT PURCHASES IN FACTOR MARKET TO BUY THINGS LIKE: RECEIVES REVENUE FROM THE SERVICES SOLD PUBLIC UNIVERSITIES CHARGE TUTION PUBLIC HOSPITALS CHARGES FEES SECTOR FOUR: FOREIGN SECTOR ALL OTHER COUNTRIES IN THIS WORLD LINE WITH ARROW AT BOTH ENDS B/C WE SELL AND BUY PRODUCTS FROM OTHER COUNTRIES. OFFSETS EACH OTHER PRODUCTIVITY & ECONOMIC GROWTH PRODUCTIVITY MEASURE OF THE AMOUNT OF OUTPUT PRODUCED BY A GIVEN AMOUNT OF INPUTS IN A SPECIFIC PERIOD OF TIME LABOR TERMS: BUT APPLIES TO ALL FACTORS OF PRODUCTION HELPS TO SPECIALIZE: WHICH LEAD TO FOREIGN TRADE WHY NATIONS TRADE? 1. SPECIALIZATION GOODS AND SERVICES YOU CAN PRODUCE BETTER THAN ANYONE ELSE 2. COMPARATIVE ADVANTAGES HIGHER WAGES, BETTER JOBS 3. TRADE CREATES JOBS AND MARKETS DIVISION OF LABOR 4. ECONOMIC INTERDEPENDENCE WE RELY ON EACH OTHER FOR GOODS AND SERVICE BELL STARTER (Section 3) CAPITALISM FREE ENTERPRISE COMSUMER SOVEREIGNTY PRIVATE PROPERTY RIGHTS COMPETITION PROFIT PROFIT MOTIVE VOLUNTARY EXCHANGE CAPITALISM & FREE ENTERPRISE MARKET ECONOMY CAPITALISM ECONOMIC SYSTEM IN WHICH PRIVATE CITIZENS OWN AND USE FACTORS OF PRODUCTION FOR THEIR OWN PROFIT FREE ENTERPRISE COMPETITION IS ALLOWED TO FLOURISH WITH A MINIMUM OF GOVERNMENT INTERFERENCE FEATURES OF CAPITALISM MARKET IMPORTANT PART OF OUR ECONOMIC SYSTEM LOCAL, STATE, NATIONAL, GLOBAL CONNECT CONSUMERS & BUSINESS IN FACTOR & PRODUCT CONSUMER MOST IMPORTANT CONSUMER SOVEREIGNTY Consumers as king or ruler of the market FEATURES OF CAPITALISM ECONOMIC FREEDOM CHOOSE TYPE OF JOB CHOOSE WHEN & WHERE WE WANT TO WORK AND FOR HOW MUCH CHOOSE PRODUCTS WE BUY BUSINESS CHOOSE THE PRODUCTS THEY PRODUCE OR SALE FEATURES OF CAPITALISM PRIVATE PROPERTY RIGHTS TAKE BETTER CARE OF ITEMS YOU OWN AS OPPOSE TO RENTING FREEDOM TO DISPOSE OF IT INCENTIVE TO WORK, SAVE, AND INVEST FEATURES OF CAPITALISM COMPETITION CAPITALISM THRIVES ON THIS INVISABLE HAND (ADAM SMITH) DRIVES PRICES DOWN REWARDS MOST EFFICIENT PRODUCERS & FORCES OTHERS OUT OF BUSINESS FEATURES OF CAPITALISM THE PROFIT MOTIVE FREE TO RISK EVERYTHING IN BUSINESS VENTURE GOES WELL-PROFIT GOES BADLY - BANKRUPT (REPO) PROFIT: AMOUNT LEFT OVER AFTER ALL COST OF PRODUCTION HAVE BEEN PAID FEATURES OF CAPITALISM VOLUNTARY EXCHANGE YOU AND THE SELLER-GIVE AND TAKE BOTH PARTIES FEEL THAT THEY WILL BENEFIT SPREAD OF CAPITALISM NO ONE PERSON INVENTED SPECIALIZATION COMPARATIVE ADVANTAGE ADAM SMITH WEALTH OF NATIONS 1776 LAISSAZ-FAIRE ECONOMICS HANDS OFF - NO GOVERMENT REGULATIONS OR INTERFERANCE INDIVIDUALS SEEKING TO MAKE A PROFIT BENEFIT ALL OF SOCIETY INVISABLE HAND COMPETITION