Economic Activity 8.03 Explain the circular flow of economic activities and how interactions determine the prices of goods and services. Part-time workers are a part of a market economy.

Markets of Economic Flow 1. A market is a location or other situation that allows buyers and sellers to exchange a certain economic product. 2. Markets can be local, regional, national, or global. 3. A circular flow of economic activity– resources, goods and services, and money– takes place among the consumer, business, government and foreign sectors.

Types of Markets 1. Factor Market (Households)-where businesses buy capital and labor a. Capital comes from household savings b. Labor is household members c. Wages or salaries determined by market d. Contract=household members agree on price for labor e. Interest-rate of return that households require first to pay to get the households to invest in the firm

1. The Product Market (Business)-where firms supply goods and services for sale to households a. Households buy goods and services they need or want b. Businesses purchase capital goods used in production c. If products sold for more than cost of production, the firm has a profit, paid to equity holders d. No profit= no more equity or capital

The flow of economic Activity 1. Households either spend or save income earned from factor market 2. Households return money by purchases or investment 3. These flows require both firms and households to create economic interdependence a. Households and firms need each other to keep the economy going b. Events in one part of the country can have an effect elsewhere (Mad Cow Disease= price of beef and milk rise in North Carolina)

Buying a CD, paying for dinner Any product or service Renting a building Paying salaries, profit sharing

Type of Goods produced 1. Private Goods -goods consumed by the consumer that can not be consumed by another (clothes, food, shoes) 2. Public Goods -goods that can be consumed by one person without preventing the consumption by another (parks, museums, libraries)

Government Sector 1. The government provides goods and services and receives revenue from the Factor Market 2. It taxes business and individuals to cover loss of revenue 3. Governments also use the revenue to purchase goods and services for final products (School systems purchase books or the military purchases trucks and ships)

Foreign Sector 1. We sell products to and buy products from other countries 2. Buying and selling to countries offset one another 3. Makes up about 4 percent of Gross Domestic Product

The four Economic Sectors The Consumer Sector The Business Sector The Government Sector The Foreign Sector Sell Labor in the factor market Earn wages, salaries, and tips in exchange for labor People who own land may rent it to others People exchange capital for interest Individuals spend their earnings in the product market Receives payments for goods and services Use payments to pay for natural resources, labor, and capital and use resources to manufacture more goods and services % of nations GDP Made up of all 3 levels of government Also produces goods and services; Purchases productive inputs from the factor market Receives revenues from taxes; use money to purchase goods and services Approx. 20% of nations GDP Represents all countries in the world We both buy and sell products from other countries Imports and exports typically offset each other Accounts for less than 4% of our nation’s GDP.