1. Chapter 19
Objectives:
7.01, 7.04, 7.05, 7.06,
8.02, 8.03, 8.06, 9.01

2. Starter
The ability of a country to produce a product at a lower cost than another country is called ________. P.708
The NAFTA trade agreement was made among ______. p. 710
A major challenge facing developing countries is ____. P.724

3. Economic Resources Goods – a physical product
Services – like entertainment or lawn care
Factors of production: resources necessary to produce goods/services
Natural Resources: ‘gifts of nature’
Labor: human resources
Capital: manufactured goods used to make other goods and services (like a hammer)
Entrepreneurs: an individual who starts a new business, introduces new products, improves processes; are innovators and willing to take risks
Capital Goods are not the same as Consumer goods (like clothes, clocks, etc.). But, a hammer could be a consumer good.

4. Economic Resources
Gross Domestic Product: a measure of the economy’s size; the total value in dollars of all the final goods and service produced in a country during a single year
Need to know the relative value of each good
Used as an indicator of standard of living:
Quality of life based on possession of necessities and luxuries to make like easier
Only measures quantity, not quality
Individuals measure success by income or ability to provide for themselves.
A final good would be a loaf of bread. The flour or wheat used to make the bread is not included in GDP.
Used goods being sold are not counted in the GDP

5. Economic Resources
Net Domestic Product: is the GDP subtracted by the loss in value of capital goods by depreciation
Depreciation is the loss of value due to wear and tear on a product

6. Economic Activity
Market: the free and willing exchange of goods and services between buyers and sellers; not necessarily a place.
Can be global, national, regional, or local
Resources, goods, and services flow in a circular pattern
Market is made of different sectors

7. Economic Activity Consumer Sector: Business Sector:
Consumers earn income in factor markets:
Markets where productive resources are bought/sold
Earn wages, salaries, etc. for labor
Business Sector:
Individuals spend income in product markets:
Markets where producers offer goods/services for sale
Businesses sell goods for payment and then use that payment to buy resources, labor, capital.
Smaller than the consumer sector

8. Economic Activity Government Sector: Made of all levels of gov’t
Gov’t buys productive resources from the factor markets and goods/services from product markets
For example, military buys trucks, planes, & ships
Gov’t also produces goods and services
Public Universities, hospitals, transportation
Usually the second largest sector

9. Economic Activity Foreign Sector: Every other country in the world
We buy from and sell to the Foreign Sector
Usually the smallest sector

10. Economic Growth
Occurs when total output of goods/services increases over time
Productivity: efficient use of resources
measure of amount of output produced by given level of inputs in specific period of time
Specialization: when people, businesses, regions, & countries concentrate on goods or services that they can produce better than anyone else
Increases productivity

11. Economic Growth
Division of Labor: breaking down a job into small tasks performed by different workers
also improves productivity
Human capital: Businesses invest in people’s skills, abilities and motivation to increase productivity
Economic Interdependence: because of specialization people rely on each other

12. Capitalism
Capitalism: an economic system in which private citizens own and use the factors of production in order to seek a profit.
Free enterprise: competition is allowed to grow with minimal gov’t interference.
Thus America’s economy is a combination of the two

13. Capitalism Factors helping capitalism to succeed: Markets
Connect the different sectors
Help determine prices
Consumer is “king” of the market
Economic Freedom
Can choose your occupation, what to buy, sell, etc.
You also have the freedom to fail
Private Property Rights:
Freedom to own, use, or dispose of your property (without interfering with others)
Gives people motivation to work hard and take care of property

14. Capitalism Competition Profit Motive Voluntary exchange
The struggle between buyers and sellers to get the best products at the lowest prices
Helps keep prices low, quality high
Profit Motive
Profit: the amount of money left over after all the costs of production have been paid
A large factor in growth of free-enterprise
Voluntary exchange
the act of buyers and sellers freely/willingly engaging in market transactions
The buyer and seller both believe they will profit

15. History of Capitalism Adam Smith Scottish philosopher and economist
Wrote The Wealth of Nations (1776)
Individuals, when left alone, work for their own self-interest; they would be guided by an “invisible hand”
The basic principles of economics
Laissez-faire economics based on book
French phrase meaning “to let alone”
Means gov’t’s role is only to ensure free competition
Many founding fathers influenced by book