Goods- tangible things produced

Services- work preformed for someone else

Factors of production- resources necessary to produce goods and services› Natural resources› Labor› Capital

Manufactured goods used to make other goods and services

Satisfies wants indirectly› Entrepreneurs- individuals who starts a new

business, product, or improve processes

Gross Domestic Product- total value of all final goods and services produced in a country during a single year› Intermediate goods are not included

Standard of living- the quality of life based on the possession of necessities and luxuries that make life easier

GDP is only a matter of economic performance, it does not measure the overall well being of a society

NDP (Net Domestic Product)- takes GDP and subtracts the total loss in value of capital goods caused by depreciation

Market- free and willing exchange of goods and services

Market systems- flow is circular

The consumer sector Factor markets- the markets where

productive resources are bought and sold › Consumers earn their income› Workers earn wages, salaries, and tips in

exchange for labor› People who own land rent it› People that own capital exchange it for

interest

The Business Sector Product market- markets where

producers offer goods and services for sale› Sell goods and services to consumers› Businesses use the profit to pay for the

natural resources, labor, and capital they use

The business sector also purchases some of the output it uses› Capital goods- so that it can produce more

goods and services Tools Factories Etc.

The Government Sector All 3 levels of government Produces goods and purchases

productive inputs The government receives revenue from

the services it sells› Tuition› Fees› taxes

The Foreign Sector

› We sell and buy products from foreign markets

Promoting Economic Growth

Economic growth is a major goal of our economy› Improves our standard of living

Productivity- measure of the amount of output produced by a given level of input in a specific time

Specialization- concentrating on goods and services they can produce better than anyone else

Division of labor- breaking down a job into small tasks performed by different workers

Economic interdependence- we rely on others and others rely on us to provide goods and services

US economy built on Free markets and private ownership

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 flourish with a minimum of government interference

Has been very successful for us

Markets- › prices are set› Exchange takes place› Can be local, regional, national or global› Factor markets v. product markets

Consumer sovereignty- “consumer is king” of the market. › They determine what is produced

Consumers have the right to choose which products they buy

Businesses have the right to choose the products that they will sell› Individuals must accept the consequences

of these two

Private Property rights- freedom to own and use, or dispose of, our own property as we choose as long as we do not interfere with the rights of others› Gives us the drive to work

Competition- struggle between buyers and sellers to get the best products at the lowest prices› Cost of production low and the quality of

goods high› Rewards the most efficient producers› Least efficient out of business

Profit- amount of money left over after all the costs of production have been paid

Profit Motive- the driving force that encourages individuals and organizations to improve their material well-being› Responsible for the growth of a free

enterprise system based on capitalism

Voluntary Exchange- act of buyers and sellers freely and willingly engaging in market transactions› Both buyer and seller should benefit

1776- Adam Smith- The Wealth of Nations› Life and trade of British society› Scientifically describes economic principles

for the first time› Founding fathers were influenced by Smith

Individuals left on their own will work for their own self-interest

“invisible hand”- would guide individuals

Laissez-faire economics- “to let alone”› Government should not interfere in the

marketplace› Government role is to keep competition