Resources Factor Market Taxes Households Firm Product Market Taxes interest, Profit, Rent, Wages Factor Payments Household Income Resources Factor Market Capital, Entrepreneurship, Land, Labor Taxes Purchase of goods/services Household income, interest Households Taxes Firm Government Goods and Services Goods and Services Purchases Revenue Product Market

HOUSEHOLDS earn income in the form of: Wages [labor] Rent [land] Interest [capital] Profits [Entrepreneurs who live in households and start businesses]. With incomes, households acquire the goods and services they demand in the Product Market.

Households/individuals possess 4 scarce resources /factors of production: 1-LAND: grow crops, mine minerals, catch fish, log forests. Owned by private individuals or households through the private sector. 2-LABOR: work in the production of goods and services They live at home and go to work. 3-CAPITAL: technology used to produce goods: computers, factory equipment, tractors for farmers. Provided through our savings of money. 4-Entrepreneurs: start business/firms and also live at home/risk- takers

10-What is a factor market? Provide examples. People earn their incomes in factor markets, where the factors of production are bought and sold. This is where entrepreneurs hire labor for wages/salaries’ acquire land in return for rent and borrow money. People sell their resources there: land, capital, labor

11-What is a product market? Provide examples. People spend the income from the resources they sell in the factor market to the product market. Producers sell their goods and services and wages and salaries that individuals receive from businesses in the factor market returns to businesses in the product market. Businesses then use this money to produce more goods and services and try to earn a profit.  

It’s all about selling! Households: sell resources in the Resource Market Businesses: sell goods and services in the Product Market   Businesses =suppliers/sell Households=demanders/buy goods and services in the Product Market

Households exchange these resources in the Factor/Resource Market   Resources flow from households to Firms [businesses] in Factor/Resource Market Firms buy resources/Households sell resources in the Factor/Resource Market

Goals of Businesses and Households in the Marketplace   BUSINESSES: maximize profits They must sell goods and services for more than they spend on resources [profit]. Their revenues must be greater than their cost. HOUSEHOLDS: It’s not about the money, which is just a medium of exchange. It is to maximize utility or “happiness.” “Happiness” is achieved through consumption of goods and services. The market is where buyers and sellers meet to engage in a mutually beneficial exchange.

  Goals: Households wish to improve their standard of living, so their goal is to earn a high enough income to enjoy a level of consumption of goods and services that improves their family’s standard of living. Firms: Profit