Lesson 6 Microeconomics

Goods, Services, and Money Microeconomics (micro: small) “zooming in” on producers and consumers ex: buying or selling of video games Macroeconomics: (macro: large) “zooming out” study of behavior and decision making of entire economies. ex: unemployment rate of the country

Circular Flow Model: shows how individuals and businesses exchange money, resources, and products in the market place.

Two basic units of Microeconomics: Producers: firms/businesses that produce goods and services. (use resources to make products)

2. Consumers: people who purchase goods - Households: groups of people (families) that live together and purchase goods to be shared by everyone in the group. ex: shared products: furniture, appliances, and cooking equipment.

Two types of markets 1. Factor market (resource): a. includes all the exchanges that firms/businesses must make in order to produce things. b. firms/businesses must pay for all the resources (factors of production)

Continue Factor Market Land: pay rent to landlords Labor: pay wages to workers Capital: pay interest to people who lend them money to invest (businesses use these resources to provide goods and services for the product market)

2. product market households buy things that firms/businesses have made. Incomes of households flow back to businesses as profits (profit: financial gain made in a transaction) Firms/businesses use profits to buy more resources in the factor market Firms/businesses can make more products for households to buy.

Circular Flow Model

Money Barter: trade or exchange of one set of goods or services for another. Why do we use money in America? medium of exchange: anything that is used to determine value during the exchange of goods and services.

2. standard of value standard of value: allows us to compare the economic value of different goods and services.

3. store of value store of value: something that keeps its value if it is stored rather than used.