1. Chapter 1 : Lesson 3
Using Economic Models

2. Essential Question
How do businesses and individuals participate in both the product market (household sector) and the factor market (business sector) in an economy?

3. Vocabulary Term
Specialization – dividing up production so that Goods are produced efficiently
Hardee’s makes hamburgers, not shoes!!
Nike makes shoes, not hamburgers

4. You do your job, and I will do my Job and we will be more EFFICIENT
Vocabulary Term
Division of Labor – different people perform different jobs to achieve greater efficiency (assembly line).
You do your job, and I will do my Job and we will be more EFFICIENT

5. In our economic system there are two sectors the business sector and the household sector

6. Household Sector
Demand consumer goods, like: cars, computers, washers, lawnmowers, etc.
Households provide labor resources to business and own most of the resources of production

7. Businesses Sector Produce and supply goods and services
Businesses demand resources for production: land, labor, capital, and entrepreneurs

8. These two sectors interact in two markets:
the Product Market and the Factor Market

9. Product Markets
are the markets where households acquire finished (consumer) goods & services.
The markets we are most familiar with are retail markets.
Examples include: Wal-Mart, gas stations, Burger King, Best Buy, the dentist.

10. Factor Markets
are the markets where business acquire the factors of production (land, labor, capital..)
When you are looking for a job you are in the factor (labor) market.
Examples include: Cowan Equipment, IBM Business Solutions, Snelling Personnel

11. Draw The Circular Flow Model
Economic model illustrating the flow of goods and services though the economy.

12. Product Markets Factor Markets
Businesses produce goods and provide services in the product market. In exchange households pay for goods & services with consumption expenditures (money)
Factor Markets

13. Product Markets Factor Markets
Households provide labor, own land, invest in capital and have the talent businesses need to produce goods and services. To pay for these resources business pay wages and salaries, pay rent, purchase raw material, pay dividends to households.
Factor Markets

14. Product Markets Factor Markets goods & services… ….goods & services
….consumption spending….
….salaries, wages, rent, dividends…..
Factor Markets
land, labor, capital……
…entrepreneurial ability

15. In a mixed economy its not always this simple, something is missing.
Product Markets
goods & services…
….goods & services
….consumption spending….
In a mixed economy its not always this simple, something is missing.
The Government
….salaries, wages, rent, dividends…..
Factor Markets
land, labor, capital……
…entrepreneurial ability

16. Product Markets Factor Markets goods & services… ….goods & services
….consumption spending….
….salaries, wages, rent, dividends…..
Factor Markets
land, labor, capital……
…entrepreneurial ability

17. Product Markets Factor Markets goods & services… ….goods & services
….consumption spending….
Personal Income Taxes
Corporate Income Taxes
….salaries, wages, rent, dividends…..
Factor Markets
land, labor, capital……
…entrepreneurial ability

18. Product Markets Factor Markets goods & services… ….goods & services
….consumption spending….
Personal Income Taxes
transfer payments
subsidies
Corporate Income Taxes
….salaries, wages, rent, dividends…..
Factor Markets
land, labor, capital……
…entrepreneurial ability

19. Product Markets Factor Markets goods & services… ….goods & services
….consumption spending….
Personal Income Taxes
transfer payments
subsidies
Corporate Income Taxes
….salaries, wages, rent, dividends…..
Factor Markets
land, labor, capital……
…entrepreneurial ability

20. Review Question:
Chapter 1 : Lesson 3
Read pages and answer Review Questions on page 29. Hand in Google Class Room.