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Section 1-Main Idea Guide to Reading Big Idea An economic system is the way a society organizes the production and consumption of goods and services.

Section 1 Goods and Services Four factors of production are necessary to produce goods and services.

Section 1 Goods and Services (cont.) The production of goods and services is controlled by four factors of production. Output, or things produced, comes in two forms: –Goods: physical things, such as booksGoods –Services: work for someone else, such as a haircutServices

Section 1 There are four factors of production:factors of production –Natural resources: “gifts of nature” transformed for use (ex: trees to lumber)Natural resources –Labor: human workLabor –Capital: tools, machinery, and buildings used to make other productsCapital Goods and Services (cont.) Capital goods are the result of production

Section 1 –Entrepreneurs: people who start new businessesEntrepreneurs Good entrepreneurs are innovative Goods and Services (cont.)

Section 1 Gross Domestic Product GDP is the total value of all the final goods and services produced in a country in one year.

Section 1 Gross Domestic Product (cont.) The Gross Domestic Product (GDP) is one way to measure the economy.Gross Domestic Product (GDP) GDP totals final goods and services produced in one year. –Goods that go into making or doing something are not counted –Goods that are used up also do not count

Section 1 Measuring GDP: –Finds relative worth of goods –Helps measure standard of livingstandard of living –Measures quantity, not quality –Does not account for depreciation, or loss of value over time Gross Domestic Product (cont.) Measuring GDP

Section 1 Net domestic product also measures the economy. –Subtracts production caused by depreciation from GDP Gross Domestic Product (cont.)

Section 2-Main Idea Guide to Reading Big Idea The basis of the market economy is voluntary exchange. In the American economy, the exchange usually involves money in return for a good or service.

Section 2 Economic Sectors and Circular Flow Resources, goods and services, and money flow in a circular motion among several sectors.

Section 2 Economic Sectors and Circular Flow (cont.) An economic market is the free exchange of products among buyers and sellers.market Markets operate in a circular motion between different sectors:sectors –Consumers: Earn income in factor marketsfactor markets Wages, salaries, tips, rent, interest

Section 2 –Business sector Sells goods and services in product markets product markets Uses consumer payments to buy more goods for products Smaller than consumer sector Economic Sectors and Circular Flow (cont.) Circular Flow of Economic Activity

Section 2 –Government sector Federal, state, and local Purchases productive inputs Receives revenue from selling services Purchases final goods and services Second largest sector of economy Economic Sectors and Circular Flow (cont.)

Section 2 –Foreign sector Both buys and sells Usually balances buying and selling Small percentage of GDP Economic Sectors and Circular Flow (cont.)

Section 2 Promoting Economic Growth Economic growth occurs when a nation’s total output of goods and services from all economic areas increases.

Section 2 Promoting Economic Growth (cont.) Economic growth occurs when the total output of goods and services increases over time. Productivity measures amount of output by certain inputs.Productivity –Rises when output goes up and input stays the same, or output stays the same and input goes down –Applies to all factors of production

Section 2 Productivity improves through: –SpecializationSpecialization –Division of laborDivision of labor –Investment in human capital Promoting Economic Growth (cont.)

Section 2 Economic interdependence is key to our economyEconomic interdependence –Bad: Loss of self-sufficiency, affected by problems elsewhere –Good: Gains in productivity Promoting Economic Growth (cont.) Interdependence has trade-offs:

A.A B.B Section 2 Do you agree that economic interdependence is good for the economy? A.Agree B.Disagree

Section 3-Main Idea Guide to Reading Big Idea Free enterprise is the freedom of individuals and businesses to operate and compete with a minimum of government interference or regulation.

Section 3 Capitalism The economic system of the United States is known as capitalism, in which private citizens own and use the factors of production to seek a profit.

Section 3 Capitalism (cont.) The economic system of the United States is based on capitalism.capitalism Capitalism: free markets and private ownership used to seek profits The American economy is based on free enterprise free enterprise

Section 3 Features of Capitalism: –Markets: Capitalism (cont.) Connect parts of the economy Local, regional, national, or global Set prices Consumer sovereignty (“consumer is king”)Consumer sovereignty

Section 3 –Economic Freedom: Choices in jobs and purchases Cost—Accepting consequences of actions Capitalism (cont.) –Private Property Rights:Private Property Rights Freedom to own and use property Incentive to work, save, investIncentive

Section 3 –Competition:Competition Struggle between buyers and sellers Efficient production Higher quality products More satisfied customers Capitalism (cont.)

Section 3 –Profit MotiveProfit Motive Profit is the amount left after costs have been paid.Profit Encourages improvement of own well being Responsible for growth of free enterprise system Capitalism (cont.)

Section 3 –Voluntary exchangeVoluntary exchange Act of freely engaging in market transactions Both buyer and seller benefit, but both give up something Capitalism (cont.)

A.A B.B C.C D.D Section 3 Who do you think benefits most from the free enterprise system? A.Consumers B.Business owners C.Government D.All the same

Section 3 History of Capitalism Capitalism developed gradually in Europe and had a powerful influence on America’s constitutional Framers.

Section 3 History of Capitalism (cont.) Capitalism, as developed in Europe, greatly influenced American’s Framers. Adam Smith’s Wealth of Nations –Published in 1776 –First description of basic economic principles –“invisible hand” Laissez-faire economics

A.A B.B Section 3 Do you think the principle of laissez-faire is a good way to run an economy? A.Yes B.No

VS 1 Economic Resources The four factors of production (natural resources, labor, capital, and entrepreneurs) provide the means for a society to produce its goods and services. Gross Domestic Product (GDP) is the total value of all the final goods and services produced in a country in one year.

VS 2 Economic Activity Productivity relates to the efficient use of resources, and tends to go up when workers specialize in the things they do best. Resources, goods and services, and money flow in a circular motion among several sectors, and economic growth occurs when a nation’s total output of goods and services increases.

VS 3 Capitalism and Free Enterprise The economic system of the United States is based on capitalism and free enterprise. Important characteristics are markets, economic freedom, competition, private property rights, the profit motive, and voluntary exchange.

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Vocab1 goods tangible products that we use to satisfy our wants and needs

Vocab2 services work performed by a person for someone else

Vocab3 factors of production resources necessary to produce goods and services

Vocab4 natural resources gifts of nature that make production possible

Vocab5 labor human effort directed toward producing goods and services

Vocab6 capital previously manufactured goods used to make other goods and services

Vocab7 entrepreneurs individuals who start new businesses, introduce new products, and improve management techniques

Vocab8 Gross Domestic Product (GDP) total dollar value of all final goods and services produced in a country during a single year

Vocab9 standard of living the material well-being of an individual, group, or nation measured by how well their necessities and luxuries are satisfied

Vocab10 output something produced

Vocab11 innovate to introduce or create something new

Vocab12 market free and willing exchange of goods and services between buyers and sellers

Vocab13 factor market a market where productive resources are bought and sold

Vocab14 product market a market where producers offer goods and services for sale

Vocab15 productivity the degree to which resources are being used efficiently to produce goods and services

Vocab16 specialization when people, businesses, regions, and/or nations concentrate on goods and services that they can produce better than anyone else

Vocab17 division of labor the breaking down of a job into separate, smaller tasks to be performed individually

Vocab18 economic interdependence a reliance on others, as they rely on you, to provide goods and services to be consumed

Vocab19 sector a segment or distinct part

Vocab20 consume to use up

Vocab21 input to contribute an idea or opinion ; to enter data

Vocab22 capitalism a system in which private citizens own most, if not all, of the means of production and decide how to use them within legislated limits

Vocab23 free enterprise economic system in which individuals and businesses are allowed to compete for profit with a minimum of government interference

Vocab24 consumer sovereignty the role of consumer as the ruler of the market, determining what products will be produced

Vocab25 private property rights the freedom to own and use our own property as we choose as long as we do not interfere with the rights of others

Vocab26 competition the struggle that goes on between buyers and sellers to get the best products at the lowest prices

Vocab27 profit the money a business receives for its products or services over and above its costs

Vocab28 profit motive the driving force that encourages individuals and organizations to improve their material well-being

Vocab29 voluntary exchange the act of buyers and sellers freely and willingly engaging in market transactions

Vocab30 laissez-faire economics economics philosophy where government should not interfere in the marketplace

Vocab31 accumulate to increase in quantity or size

Vocab32 dispose to throw away or discard

Vocab33 incentive reward offered to try to persuade people to take certain economic actions

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