The American Economy Today, you will need notebook paper

Goods: tangible products that satisfy our wants and needs. 4 FACTORS OF PRODUCTION- resources necessary to produce goods and services. 1.Natural resources 2.Labor 3.Capital 4.Entrepreneurs

NATURAL RESOURCES –Gifts of nature that make production possible. Fertile farmland Abundant rainfall Forests minerals

LABOR Nation’s labor/WORK force A.k.a. human resources Physical and mental efforts that people contribute to the production of goods and services

CAPITAL Goods Capital goods! Tools and machinery and buildings used to make other products THEY ARE THE RESULT OF PRODUCTION OR MONEY NEEDED TO DEVELOP GOODS

ENTREPRENEURS Individuals who start new business, introduce new products and improve management techniques Willing to take risks Use f.o.p. to produce new products

THE GDP: GROSS DOMESTIC PRODUCT WE can measure our economic success by our income and ability to provide for ourselves and our families The success of the OVERALL economy is measured in a similar way. MEASURE OF Economy's SIZE IS THE GDP!

GDP: Gross Domestic Product Total value in DOLLARS, of all the FINAL goods and services produced in a country during a SINGLE year. FINAL good- ex: loaf of bread sold to you. INTERMEDIATE good- goes into making a loaf of bread: –Wheat –Sugar –Honey…. ARE NOT COUNTED IN GDP!

Standard of living- –Quality of life based on the possession of necessities and luxuries that make life easier. –IF GDP grows faster than the population, there are more goods and services for EACH of us to enjoy! GDP is an important way to measure the STANDARD of LIVING

QUANTITY vs. QUALITY GDP measures: QUANTITY Quantity-GDP does not reflect improvements in the quality of products. DIFFERNECE b/w a $1500 computer purchased today, than a computer costing the same amount a few years ago. FOCUS ON THE QUALITY OF IMPROVMENT!

REVIEW: 4 FACTORS OF PRODUCTION: 1. natural resources 2. labor –Physical and mental 3. Capital 4. Entrepreneurs GDP based on __________? QUANTITY

Section 2: Economic Activity and Productivity GET A BOOK… Circular Flow Model: pg 429 The flow of resources, goods and services and $$ in a market system is CIRCULAR! Called a circular flow diagram.

Circular Flow: WHY IS IT CIRCULAR? 1. Consumers earn income in FACTOR MARKET: the market where productive resources are bought and sold. Here we earn salaries in exchange for labor. People who own land can loan it out: RENT! People who own capital exchange it for interest 2. When those people get their income, they spend it in the PRODUCT MARKET: the market where producers offer goods and services for sale.

Government Sector: Made up of all 3 levels of government: 1.Federal 2.State 3.local. –It also can produce goods and services (ntl.defense, education, housing, transportation) –Public universities charge tuition, hospitals charge fees, buses charge fares.

Foreign Sector Represents all the countries in the world Arrow at both ends b/c we SELL products to and BUY products from other countries. _________________________________ Define the following: pgs (7 minutes) Productivity, specialization, division of labor, human capital and economic interdependence.

Section 3: Capitalism and Free Enterprise Capitalism- where WE own most, if not all means of production Free enterprise- businesses can compete for profit with LITTLE gov’t inference

3 Terms used to describe the AMERICAN economy:

CONSUMER SOVEREIGNTY WE ARE IMPORTANT B/C BUSINESS WANT TO TRY TO PRODUCE THE PRODUCTS THAT WE WANT CONSUMER IS KING or ruler of the market. ANOTHER FEATURE OF CAPITALISM: –Private property rights- freedom to own and use or dispose of own property as we choose –Competition- struggle b/w buyers and sellers to get best products at the LOWEST prices

SPREAD OF CAPITALISM Grew from medieval and early Europe. 1. People should work for economic gain 2. Gov’t should have a limited role in economy ADAM SMITH- Scottish economist and philosopher.

Wealth of Nations (1776) Described basic principles of economics for the 1 st time. From this we get: –LAISSEZ-FAIRE economics: “to let alone”  gov’t should not interfere in marketplace.

Section 4: THE ECONOMY & YOU CONSUMER BILL OF RIGHTS: –Right to a safe product –Right to be informed –Right to choose –Right to be heard –Right to redress (get $ from manufactures if product causes physical or financial harm)

QUIZ TOMORROW- Goods Services Factors of production 4 factors of production GDP Standard of living Circular flow model Consumer sovereignty Private property rights Competition Productivity Specialization division of labor human capital economic interdependence.