Chapter 1 What is Economics Section 2 Basic Economic Concepts

Goods, Services, and Consumers

•

Economics is concerned with Economic Products– goods and services that are useful, relatively scarce, and transferable to others.

Types of Economic Products

•

Goods – a useful tangible item that satisfies a want.

–

Consumer goods are intended for final use by the consumer.

–

Durable good last 3 years or longer with regular use.

–

Non-durable good is something that lasts fewer than 3 years.

Types of Economic Products

•

Services – work that is perform for someone.

–

Services are not tangible like goods

Types of Economic Products

•

Consumers – people who use good and services to satisfy their needs and wants

–

Consumption is the process of using up goods and services.

Value, Utility, and Wealth

• •

Value refers to a worth that for us can be expressed in dollars and cents.

Paradox of Value – (Adam Smith) When you have some necessities such as water have a low value and some non necessities such as diamonds have a very high value

Value, Utility, and Wealth

•

Utility – the capacity to be useful and provide satisfaction.

–

It is not fixed or even measureable

–

Can vary from person to person

–

If something does not have utility then it will have little value

Value, Utility, and Wealth

• • •

Wealth – the accumulation of products that are tangible, scarce, useful, and transferable to others.

National Wealth – comprised of all tangible items that can be exchanged Services are not counted as wealth, but are important to a nation in creating wealth and maintaining it.

The Circular Flow of Economic Activity

• •

The wealth that an economy generates is made possible by the circular flow of economic activity The key feature is the market where buyers and sellers are allowed to exchange a specific product.

Factor Markets

•

Individuals earn their incomes in factor markets where the factors of production are bought and sold.

–

Labor is hired for wages and salaries, land is bought and rented, and money is borrow.

Product Markets

•

After individuals receive their income from the resources they sell in the factors market they spend it in the product markets.

–

it is where producers sell their goods and services

–

Money that was spend by business in the factors market is returned to it here.

–

The Cycle then repeats itself

Figure 4

Productivity and Economic Growth

•

Economic Growth – occurs when a nation’s total output of goods and services increases over time.

Productivity and Economic Growth

•

Productivity – when scarce resources are used efficiently by measuring the amount of goods and services produced with a given amount of resources in a specific period of time.

• • • •

Investing in Human Capital The sum of people’s skills, abilities, health, knowledge, and motivation Government – invests by providing education and health care Businesses – Invests by training and other programs that improve the skills of their workers Individuals – invest in their own education by completing high school, going to technical school, or attending college

Figure 5

Division of Labor and Specialization of Labor

• •

Division of Labor is a way of organizing work so that each individual worker complete a separate part of the work Specialization takes place when factors of production perform only tasks they can do more efficiently than others. Division of labor makes this possible

Profile

Adam Smith (1723–1790)

• introduced the idea that the

division of labor led to the great prosperity of Britain

• defined the wealth of a nation

as the sum of the goods produced by its people

Concepts Trans 3

Economic Interdependence •

This means that we rely on others, and others rely on us to provide most of the goods and services we consume.