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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• • • • • • • • Goods Services Factors of production 4 factors of production GDP Standard of living Circular flow model Consumer sovereignty • Private property rights • Competition • • • • • Productivity Specialization division of labor human capital economic interdependence.