Economic Resources

Producing Goods and Services The output or amount produced is in the form of goods (tangible products like computers and fingernail polish) and services (work that is performed by one for another like a manicure or a haircut)

Factors of Production Resources necessary to produce goods and services Natural resources The gifts of nature that are used to make products Before a product is transformed into something else Examples: fertile soil, rainfall, minerals, forests, etc.

Labor Nation’s labor force or human resource Refers to both physical and mental efforts that people contribute to the production of goods and services A resource that can vary in size depending on factors such as population growth, immigration, education, disease, and war Examples: teachers, construction contractors, etc.

Capital Also called capital goods Anything used to make other products Capital goods are unique in the fact that they are a result of production (someone has to actually make it; it can not be found in nature) Examples: tools, machinery, buildings Consumer goods satisfy wants directly Examples: computers, cars, foods, etc. Capital goods satisfy wants indirectly by producing consumer goods

Entrepreneur Individuals who start new businesses, introduce new products, and improve management techniques Involves being innovative and taking risks in order to profit Often thought of as the driving force of the American economy because they use the factors of production to create new products

Question You will write a short paragraph explaining the major functions of the entrepreneur? It must be in complete sentences.

Gross Domestic Product The measure of economic success by the amount of their income and their ability to provide for themselves and their family Also called GDP The total value in dollars of all the final goods and services produced in a country in a single year A final good is the good that is sold to the consumer; intermediate goods are the goods that go into making the final good Example: final good- car intermediate good- steel

The intermediate goods are not calculated in the GDP- only the final goods and services are calculated by economists If they counted both intermediate and final goods, they would be double counting or counting a good more than once Secondhand sales are not counted as part of GDP because no new production is created: Example: the selling and buying of a used car between two people

Measuring GDP A monetary measure used to compare the number of goods and services produced to get the relative worth To compute GDP: Multiply the number of items produced by the average price of the item Add the multiple items together Example: 2,000 cars sold at average $35,000 5,000 trucks sold at average $55,000 3,500 SUVs sold at average $42,000 GDP: Cars $70,000,000 + Trucks $275,000,000 + $147,000,000 GDP = $492,000,000

If the GDP is higher than in the previous year, then the economy is expanding If the GDP is lower than the previous year, then the economy is declining Economists use GDP figures to analyze business cycle patterns GDP is an important measure of the standard of living -whenever GDP grows faster than the population, there are more goods and services, on average, for each of us to use GDP is a reasonable accurate and useful measure of economic performance, but not a measure of society’s overall well-being

Quantity vs Quality GDP measures quantity not quality GDP does not accurately reflect improvements in the quality of products Example: A car purchased today at $45,000 is not the same as a car costing the same amount 5 years ago- the car purchased 5 years ago at the same cost was probably better

Review Questions How do economist define natural resources? Is a pizza oven a capital good or consumer good? Explain. Under what factor of production would you classify a bull dozer? Under what factor of production would you classify oil? What does Gross Domestic Product measure? What does Gross Domestic Product not measure?