Test 7 Notes Thurs', Dec' 3

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Test 7 Notes Thurs., Dec. 3
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The American Economy

• Obj Describe the four factors of production
  the Gross Domestic Product

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Producing Goods and Services

• 4 Factors of Production Anything used to
  produce goods and services
• Natural Resources
• Labor
• Capital
• Entrepreneurs

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1) Natural Resources

• Things from nature, such as metal ores, that are
  used to make products.
• Ex farmland, rain, forests, etc.

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2) Human Resources (Labor)

• The nations workforce
• Includes physical and mental work that people
  contribute to the production of goods and
  services

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3) Capital

• a.k.a. Capital Goods
• Tools, machinery, and buildings used to make
  other products
• Capital goods vs. consumer goods
• Capital goods are used to produce consumer goods

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4) Entrepreneurs

• Business owners, inventors, etc.
• People who start new businesses, invent new
  products, improve business management techniques,
  etc.

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RAY KROC FOUNDER OF McDONALDS
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Law of Diminishing Returns

• If one factor of production is increased while
  the others remain constant, the overall returns
  will relatively decrease after a certain point.

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For Example

• If more and more farm workers are hired to
  harvest a wheat field, at some point each new
  worker will add relatively less output than his
  predecessor did, simply because he has less and
  less of the fixed amount of land to work with.

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Gross Domestic Product (GDP)

• One way to measure the economys size
• Total value of all the final goods and
  services produced in a nation during a single
  year

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Standard of Living

• GDP is a measure of the standard of living
• The higher the GDP, the better a nations
  standard of living is.

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GDP, Contd.

• Failure to account for improvements in product
  quality is a shortcoming of GDP

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Test 7 Notes Fri., Dec. 4
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Trade-Offs Opportunity Costs

• Trade-Off
• Choosing one thing means that you sacrifice
  another
• Ex You want to go to a concert and to a hockey
  game, but you can only afford to do one. Tickets
  for both cost the same amount of money
• You decide to go to the concert.
• Opportunity Cost
• The cost of the trade-off you made
• Its the value of the next best alternative
  thats given up to get the thing you chose
• For the example above, the opportunity cost is
  the hockey game you did not get to attend. Its
  also everything else you could have done with the
  time you spent at the concert AND everything you
  could have bought with the money you spent on the
  ticket

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Economic Activity Productivity

• Obj Explain the roles of factor and product
  markets and specialization

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Circular Flow of Economic Activity A Model

• Shows how the market system works
• Markets can be local, regional, national, or
  global

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Circular Flow of Economic Activity, Contd.

• Economic decision makers consumers, businesses,
  govt., foreign sectors.
• Circular Flow of economic activity resources,
  goods and services, and money takes place among
  these groups.

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Factor Markets

• Markets where the 4 factors of production
  (natural resources, labor, capital,
  entrepreneurs) are bought sold
• Ex capital markets, labor markets

• People who own capital exchange it for interest

• People who own land may loan it out in exchange
  for rent

Barber earns wages
Textile Worker Earns Wages
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Product Markets

• Where producers offer goods services for sale

Price of Haircut
Price of a Pair of Jeans
Price of Rent on an Apartment
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Consumer Sector

• Earn their incomes in Factor Markets
• Workers earn money in exchange for their labor
• Spend their incomes in Product Markets

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Business Sector

• Workers get paid spend their in Product
  Markets where producers offer goods and
  services for sale
• Use spent by consumers to buy more of the 4
  factors of production so they can make more
  stuff to sell

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Government Sector

• Made of local, state, and national govts.
• The government receives revenue from taxes
  services it sells
• Ex Tuition at state universities, city buses
  charge fares, etc.

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Foreign Sector

• All countries in the world
• We buy and sell products from and to other
  nations
• Accounts for less than 4 percent of the GDP

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Test 7 Notes Mon., Dec. 7

• 1) Quick Review The American Economy
• 2) Notes Productivity, Specialization, Elements
  of Free Enterprise
• 3) Curriculum Guides

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Productivity

• Amount of output produced by a given amount of
  inputs in a certain period of time

Productivity increases when Output increases
(more bags of dog food are produced) using less
inputs (using fewer workers) In the same amount
of time (in one week)
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Increasing Productivity

• Improving Efficiency
• Using smallest amt. of resources to produce
  greatest amount of output

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Specialization

• When businesses or nations concentrate on goods
  and services that they can produce better than
  anyone else
• Specialization improves productivity
• Instead of producing our own food, shelter and
  clothing, we buy these things from others who
  specialize in making them

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Division of Labor

• When a job is broken down into several, smaller
  tasks that are performed by different workers

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Capitalism Free Enterprise

• Obj List the major features of free enterprise

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Markets

• Places where prices of goods and services are
  determined as they are bought and sold
• For example, the labor market
• When you go to work, your labor is being sold in
  the factor markets
• The consumer is king in the American market
  system
• Businesses try to make the products and services
  that consumers want the most

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Economic Freedom

• To have the kind of job we want to have
• To work in the place where we want to work
• To buy the products that we want to buy

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Private Property Rights

• A major feature of capitalism
• Freedom to own and use, or get rid of, private
  property
• Gives people the incentive to work, save, and
  invest, since we get to keep any gains we earn

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Competition

• Struggle between buyers and sellers to get best
  products at lowest prices
• Prices favor the consumer instead of the producer
• Keeps costs of production low and quality of
  goods higher than if there was no competition

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Profit Incentive

• Motivates producers in a mkt. economy

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Limited govt. interference in economy

• A main idea in capitalism

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Adam Smith

• Wrote Wealth of Nations - Introduced idea of
  laissez faire govt. should leave the economy
  alone
• Described the economy in scientific terms for the
  first time
• People who worked for profit benefit society as a
  whole

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• Consumer Protections
• Obj Explain the kinds of help available to
  consumers

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Consumer Rights

• Consumerism movement to educate buyers about
  what they buy, and to demand better and safer
  products

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Pure Food and Drug Act (1906)

• Dangers to consumers resulted from Sinclairs
  book, The Jungle, about U.S. meat packing
  industry
• Goal Keep consumers safe

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Discretionary Income

• The money that is left over after paying for
  necessities.

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Disposable Income

• The money left over after all of the taxes have
  been paid on it.

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Interest

• Payment people receive when they lend money or
  allow someone else to use their money