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

LABORLABOR

• 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. QUALITYGDP 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 resources2. labor

– Physical and mental

3. Capital4. Entrepreneurs GDP based on __________?

QUANTITY

Section 2: Economic Activity and Productivity

• GET A BOOK… look @

• 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

interest2. 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. Federal2. State3. 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 430-432.

(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 1st 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.