Impact of Human, Capital, Productive, and Natural Resources on Investment (7.05) J. Worley Civics

Resources for Investment ► 4 Major Resources For Investment ► Human Capital  The money made by individuals and put back into the market in hopes of making more ► Capital  The investment in the productivity of a business or firm ► Natural Resources  The investment in resources to help boost their cause or make it easier to access ► Productive  The investment in the numbers of products made or sold

Resources for Investment (cont.) ► Capital Goods  Products used to make other goods or provide services  EX- Bolts used in car engines, Vans used by delivery services ► Consumer Goods  Items produced for final use by individuals  EX- Bottle of Cola, Toaster, Pair of Skis

Resources for Investment (cont.) ► Producer Price Index (PPI) Producer Price Index (PPI) Producer Price Index (PPI)  Used to estimate the costs of goods that producers might purchase or sell  Measures the average change in prices of different goods  As it pertains to investment, it not only looks at the amount of money a producer spends on capital goods but also the opportunity costs of not using that money to produce more goods to be sold

Productivity ► Output vs. Input  Input is all of the factors of production that go into making a good or service  Output is simple the amount of goods or services being made  This is how the opportunity cost of lost production can be found  Producers have to be aware of the Law of Diminishing Return

Productivity (cont.) ► Law of Diminishing Return  As more and more of a variable input (Chefs) is combined with a fixed input (Kitchen Space), the amount of output per input decreases  This is also true for customers ► EX- Your first bowl of peppermint ice cream may be great. Your second bowl may be good. Chances are you will loss enjoyment as you keep eating bowl- after-bowl of it.

Productivity (cont.) ► Recycling  When a good is reprocessed or reused  EX- Paper, Aluminum, Plastic ► Education and Training  People increase their knowledge, skills, and value workers  Some employers are willing to pay for people to go back to school & learn more about their trade

How do Economic Systems Address Key Economic Factors (7.06)

Economic Systems ► Market Economy (Free Market Economy)  Producers are free to produce what they choose to produce and consumers are free to consume what they choose to consume ► Command Economy  Economy where prices and production are controlled by the government ► Mixed Economy (Mixed Market Economy)  Elements of both a Market and Command Economies are present  Represents more of what the US economy is

Market Economy ► Market is the organized exchange of goods, services and resources within a given region at a given time ► Adam Smith’s Wealth of Nations  Is one of the most comprehensive defenses of a free market economy  Argues the market is led by incentive on both sides ► Laissez-Faire  French term meaning to leave alone, hands-off  Implies that government should not attempt to manipulate nor regulate the market

Market Economy (cont.) ► “Invisible Hand”  This is the unseen force that Smith said would direct the economy  Relies on 3 Conditions ► Competition- Many buyers and sellers competing ► Capitalism- Ownership of capital by producing firms ► Free Enterprise- Freedom to buy/sell what one wishes

Market Economy (cont.) ► Profit Motive  Producers have an incentive to produce what consumers want because to do so will make them money ► Incentives  Influence choices made within an economy  EX- Low prices encourage people to buy more ► Private Property  Property and capital that belongs to a person

Market Economy (cont.) ► Traditional Society  The basic economic decisions that are made according to long-established patterns of behavior that are unlikely to change ► Keynesian Theory  Advocates an aggressive governmental fiscal policy  Fiscal Policy ► Govt’s strategy for using changes in public spending  Deficit Spending ► Practice of govts spending more than they have in revenue

Command Economy ► Can also be called Communism ► Communism  Society in which everyone does their best to contribute to the common good  This is socialism at its ideal stage  Socialism ► Gov’t controls all capital and owns all property

Command Economy (cont.) ► Karl Marx’s Communist Manifesto  Attacked capitalism as an unjust system that privileged the rich and exploited the poor working class  Foundation for the Socialist/Communist System  Believed that profit motive and incentive were unnecessary because people would produce just as much through cooperation

Economies of the World ► Mixed Economy  USA (Gov’t runs some areas) ► Command Economy  Cuba ► Market Economy  England (USA is still considered in this) ► CIA World Fact Book CIA World Fact Book CIA World Fact Book