1. The Circular Flow of Economic Activity
The flow of resources, goods, services, and money in our market economy is circular
What are the three sectors of our economy?
The Consumer Sector
The Business Sector
The Government Sector

2. The Consumer Sector
Consumers earn income in factor markets = the markets where productive resources are bought and sold
Factor markets are where workers earn wages, salaries, and tips in exchange for their labor

3. The Business Sector
Individuals spend their income in product markets = markets where producers offer goods and services for sale
Businesses receive payments in the product markets and use these payments to pay for natural resources, labor, and capital (three of the factors of production)

4. The Government Sector Made up of all three levels of government
Federal
State
Local
Produces goods and services such as national defense, health care, education, housing, transportation, and purchases things from factor markets
Government receives revenue from services it sells (examples: tuition, bus fares) but most comes from taxes
Uses revenue to purchase final goods and services = examples: schools purchase textbooks, military purchases trucks

5. The Foreign Sector
We sell products to foreign countries and buy products from foreign countries

6. Productivity and Economic Growth
Growth in our market economy occurs when our total output of goods and services increases over time
Essential productivity terminology
Productivity
Specialization
Division of Labor
Human Capital
Economic Interdependence

7. Essential Productivity Terminology
A measure of the amount of output produced by a given amount of inputs (machine, human) in a specific period of time
Specialization
Takes places when people, businesses, regions, and even countries concentrate on goods and services that they can produce better than anyone else
Specialization improves productivity, which increases PROFIT – the main goal of business
Think: you would not build your house yourself, you would hire a carpenter, plumber, electrician, etc.

8. Essential Productivity Terminology
Division of Labor
The breaking down of a job into separate, smaller tasks, which are performed by different workers
This is a form of specialization that improves productivity which increases PROFIT – the main goal of business

9. Essential Productivity Terminology
Labor/ Workers
Blue-collar workers: working class employee who performs manual/unskilled labor
example: factory worker
White-collar workers: perform tasks that require less physical labor. Skilled workers oftentimes are more highly paid than blue-collar workers
example: doctors, lawyers, administrative

10. Essential Productivity Terminology
Economic Interdependence
We rely on others, and others rely on us to provide services and goods that we consume
Events in one nation impact other nations around the world

11. Essential Productivity Terminology
An economy becomes more productive in several ways:
Robotics: machines perform physical tasks
Inventions: new goods and services
Innovation: improving a good or service
Automation: machines control production