1. Chapter 19 Objectives: 7.01, 7.04, 7.05, 7.06, 8.02, 8.03, 8.06, 9.01

2. Economic Resources Goods – a physical product Services – like entertainment or lawn care Factors of production: resources necessary to produce goods/services 1.Natural Resources: ‘gifts of nature’ 2.Labor: human resources 3.Capital: manufactured goods used to make other goods and services (like a hammer) 4.Entrepreneurs: an individual who starts a new business, introduces new products, improves processes; are innovators and willing to take risks

3. Economic Resources Gross Domestic Product: a measure of the economy’s size; the total value in dollars of all the final goods and service produced in a country during a single year –Need to know the relative value of each good –Used as an indicator of standard of living: Quality of life based on possession of necessities and luxuries to make like easier –Only measures quantity, not quality

4. Economic Resources Net Domestic Product: is the GDP subtracted by the loss in value of capital goods by depreciation –Depreciation is the loss of value due to wear and tear on a product

5. Economic Activity Market: the free and willing exchange of goods and services between buyers and sellers; not necessarily a place. –Can be global, national, regional, or local –Resources, goods, and services flow in a circular pattern –Market is made of different sectors

6. Economic Activity Consumer Sector: –Consumers earn income in factor markets: Markets where productive resources are bought/sold Earn wages, salaries, etc. for labor Business Sector: –Individuals spend income in product markets: Markets where producers offer goods/services for sale Businesses sell goods for payment and then use that payment to buy resources, labor, capital. Smaller than the consumer sector

7. Economic Activity Government Sector: –Made of all levels of gov’t –Gov’t buys productive resources from the factor markets and goods/services from product markets For example, military buys trucks, planes, & ships –Gov’t also produces goods and services Public Universities, hospitals, transportation –Usually the second largest sector

8. Economic Activity Foreign Sector: –Every other country in the world –We buy from and sell to the Foreign Sector –Usually the smallest sector

9. Economic Growth Occurs when total output of goods/services increases over time –Productivity: efficient use of resources measure of amount of output produced by given level of inputs in specific period of time –Specialization: when people, businesses, regions, & countries concentrate on goods or services that they can produce better than anyone else Increases productivity

10. Economic Growth Division of Labor: breaking down a job into small tasks performed by different workers –also improves productivity Human capital: Businesses invest in people’s skills, abilities and motivation to increase productivity Economic Interdependence: because of specialization people rely on each other

11. Capitalism Capitalism: an economic system in which private citizens own and use the factors of production in order to seek a profit. Free enterprise: competition is allowed to grow with minimal gov’t interference. Thus America’s economy is a combination of the two

12. Capitalism Factors helping capitalism to succeed: –Markets Connect the different sectors Help determine prices Consumer is “king” of the market –Economic Freedom Can choose your occupation, what to buy, sell, etc. You also have the freedom to fail –Private Property Rights: Freedom to own, use, or dispose of your property (without interfering with others) Gives people motivation to work hard and take care of property

13. Capitalism –Competition The struggle between buyers and sellers to get the best products at the lowest prices Helps keep prices low, quality high –Profit Motive Profit: the amount of money left over after all the costs of production have been paid A large factor in growth of free-enterprise –Voluntary exchange the act of buyers and sellers freely/willingly engaging in market transactions The buyer and seller both believe they will profit

14. History of Capitalism Adam Smith –Scottish philosopher and economist –Wrote The Wealth of Nations (1776) Individuals, when left alone, work for their own self- interest; they would be guided by an “invisible hand” The basic principles of economics –Laissez-faire economics based on book French phrase meaning “to let alone” Means gov’t’s role is only to ensure free competition –Many founding fathers influenced by book