Chapter 19: The American Economy. Goods and Services Goods are tangible products we use to satisfy our wants and needs, they include items such as books

Chapter 19: Chapter 19: The American The American

EconomyEconomy

Goods and ServicesGoods and Services

• GoodsGoods are tangible products we use to satisfy our are tangible products we use to satisfy our wants and needs, they include items such as wants and needs, they include items such as books and automobiles; books and automobiles; servicesservices include work include work performed for someone else such as haircuts, performed for someone else such as haircuts, home repairs, and entertainment home repairs, and entertainment

Factors of ProductionFactors of Production• 1. 1. Natural ResourcesNatural Resources= = ““gifts of naturegifts of nature”” that make that make

production possible; include land, water, fish, production possible; include land, water, fish, animals, forests and mineralsanimals, forests and minerals

Factors of ProductionFactors of Production• 2. 2. LaborLabor= human resources, workers= human resources, workers

Factors of ProductionFactors of Production

• 3. 3. CapitalCapital= manufactured goods used to = manufactured goods used to make other goods and services; machines, make other goods and services; machines, buildings, toolsbuildings, tools

• --ConsumerConsumer goods= directly satisfy wants goods= directly satisfy wants (clothes, shoes, etc.)(clothes, shoes, etc.)

• --CapitalCapital goods= aid in production of goods= aid in production of consumer goodsconsumer goods

Factors of ProductionFactors of Production

• 4. 4. EntrepreneurEntrepreneur= an individual who starts a new = an individual who starts a new business, introduces new products, and improves business, introduces new products, and improves processes processes

Henry Ford- Founder of the Ford Motor Company

Gross Domestic ProductGross Domestic Product

• Gross Domestic ProductGross Domestic Product is is the total value, in dollars, the total value, in dollars, of all the final goods and of all the final goods and services produced in a services produced in a country during a single country during a single yearyear

• A final good is a good sold A final good is a good sold to its user, the intermediate to its user, the intermediate goods that go into making goods that go into making it are not counted in GDP, it are not counted in GDP, and the sale of and the sale of usedused goods goods is not counted in GDPis not counted in GDP


• To calculate GDP of an economy multiply the To calculate GDP of an economy multiply the priceprice of each good by the of each good by the quantityquantity produced and then produced and then add the amountsadd the amounts

• Country A makes 10 bicycles at $200 eachCountry A makes 10 bicycles at $200 each

• $2,000$2,000

• Country A makes 10 computers at $1,500 eachCountry A makes 10 computers at $1,500 each

• $15,000$15,000

• Country A makes 10 watches at $100 eachCountry A makes 10 watches at $100 each

• $1,000$1,000

• What is the GDP of Country A?What is the GDP of Country A?

• $18,000$18,000


• GDP is an important indicator of GDP is an important indicator of standard of standard of livingliving, the quality of life based on the possession , the quality of life based on the possession of necessities and luxuries that make life easierof necessities and luxuries that make life easier


• GDP measures GDP measures quantityquantity, it does not reflect , it does not reflect improvements in the quality of products; improvements in the quality of products; economists must account for quality economists must account for quality improvement improvement

• The loss of value because of wear and tear The loss of value because of wear and tear to durable goods, such as automobiles is to durable goods, such as automobiles is called called depreciationdepreciation; GDP does not take this ; GDP does not take this into accountinto account


• Net Domestic ProductNet Domestic Product (NDP) accounts for (NDP) accounts for depreciation; it takes GDP and subtracts the total depreciation; it takes GDP and subtracts the total loss in value of capital goods caused by loss in value of capital goods caused by depreciation depreciation

GDP- Gross Domestic ProductGDP- Gross Domestic Product––DepreciationDepreciation____________________________________________

NDP- Net Domestic NDP- Net Domestic ProductProduct

Economic Sectors and Economic Sectors and Circular FlowCircular Flow

• A A marketmarket is the free exchange of goods and is the free exchange of goods and services between buyers and sellers; they may be services between buyers and sellers; they may be local, regional, national, or globallocal, regional, national, or global

• In a market system, the flow of resources, goods In a market system, the flow of resources, goods and services, and money is and services, and money is circularcircular; this ; this represents economic decision making in the represents economic decision making in the market market


• 1. 1. The Consumer SectorThe Consumer Sector= consumers earn = consumers earn income in income in factor marketsfactor markets, the markets where , the markets where productive resources are bought and sold; workers productive resources are bought and sold; workers earn wages, salaries, and tips in exchange for earn wages, salaries, and tips in exchange for their labortheir labor


• 2. 2. The Business SectorThe Business Sector= individuals spend = individuals spend income in income in product marketsproduct markets where producers offer where producers offer goods and services for sale goods and services for sale


• 3. 3. The Government SectorThe Government Sector= made up of all three = made up of all three levels of government-federal, levels of government-federal, statestate, and local; , and local; government receives revenue from services it government receives revenue from services it sells and uses it to purchase goods and services in sells and uses it to purchase goods and services in the product marketsthe product markets

http://upload.wikimedia.org/wikipedia/commons/a/af/2008-09-24_ABC_Liquors_on_Hillsborough_Rd_in_Durham.jpg


• 4. 4. The Foreign SectorThe Foreign Sector= represents all countries in = represents all countries in the world; we buy and sell products there the world; we buy and sell products there

Promoting Economic Promoting Economic GrowthGrowth

• Economic growthEconomic growth occurs when a nation occurs when a nation’’s total s total output of goods and services increases over time; output of goods and services increases over time; growth is a way to tell if our economy is healthygrowth is a way to tell if our economy is healthy


• ProductivityProductivity is a measure of the amount of output is a measure of the amount of output produced by a given level of inputs in a specific produced by a given level of inputs in a specific period of timeperiod of time


• SpecializationSpecialization takes place when people, takes place when people, businesses, regions, or countries concentrate on businesses, regions, or countries concentrate on goods or services they produce better than goods or services they produce better than anyone elseanyone else


• Division of LaborDivision of Labor is breaking down a job into small is breaking down a job into small tasks performed by different workers (ex. tasks performed by different workers (ex. Assembly Line)Assembly Line)


• Productivity increases when businesses invest in Productivity increases when businesses invest in human capitalhuman capital, the sum of people, the sum of people’’s skills, abilities, s skills, abilities, and motivationand motivation


• Our economy displays a strong degree of Our economy displays a strong degree of economic interdependenceeconomic interdependence, we rely on others, , we rely on others, and others rely on us, to provide goods and and others rely on us, to provide goods and services services

Capitalism Capitalism • The economy of the US is known as The economy of the US is known as capitalismcapitalism, an , an

economic system in which private citizens own economic system in which private citizens own and use the factors of production to seek a profitand use the factors of production to seek a profit

• In a In a free enterprisefree enterprise economy, competition is economy, competition is allowed to flourish with a minimum of government allowed to flourish with a minimum of government interference interference

What Makes Capitalism What Makes Capitalism Work?Work?

1.1. MarketsMarkets

2.2. Economic FreedomEconomic Freedom

3.3. Private Property RightsPrivate Property Rights= the freedom to own = the freedom to own and use our property as we choose as long as and use our property as we choose as long as we do not interfere with the rights of otherswe do not interfere with the rights of others

4.4. CompetitionCompetition= the struggle between buyers and = the struggle between buyers and sellers to get the best products at the lowest sellers to get the best products at the lowest prices; keeps prices low and quality highprices; keeps prices low and quality high

5.5. Profit Motive= the possibility of financial gain Profit Motive= the possibility of financial gain leads many to take risks in hopes of earning a leads many to take risks in hopes of earning a profitprofit, the amount of money left over after costs , the amount of money left over after costs have been paidhave been paid

6.6. Voluntary ExchangeVoluntary Exchange= the act of buyers and = the act of buyers and sellers freely engaging in market transactions sellers freely engaging in market transactions

History of CapitalismHistory of Capitalism• In 1776, In 1776, Adam SmithAdam Smith, a Scottish philosopher and , a Scottish philosopher and

economist wrote economist wrote The Wealth of NationsThe Wealth of Nations which which described economic principles for the first timedescribed economic principles for the first time

History of CapitalismHistory of Capitalism

• From the writings of Smith came the idea of From the writings of Smith came the idea of laissez-faire economicslaissez-faire economics, government should not , government should not interfere in the marketplace; government ensures interfere in the marketplace; government ensures free competition free competition

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Chapter 19: The American Economy. Goods and Services Goods are tangible products we use to satisfy our wants and needs, they include items such as books