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Chapter 1 Section 2

This chapter explores the fundamental concepts of economics, including economic products, goods and services, consumers, capital goods, value, utility, wealth, and the circular flow of economic activity.

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Chapter 1 Section 2

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  1. Chapter 1 Section 2 Basic Economic Concepts

  2. ECONOMIC PRODUCT • Goods and services that are: • useful • Relatively scarce • Transferable to others • In economics they are scarce Resulting in economic product commanding a price

  3. GOOD • An item that is economically useful or satisfies an economic want • A book, car, CD player • Is a type of economic product

  4. CONSUMER GOOD • Intended for final use by individual • Everything we buy for personal use clothes, shoes, cars, boats, deodorant, toothpaste, etc

  5. CAPITAL GOOD • Manufactured good that is used to produce other goods and services • Oven in a bakery • Computer in a classroom • DURABLE GOOD VERSUS NONDURABLE GOOD • Durable-items that last 3 yrs or more when used on a regular basis • Automobiles • Welder robots • Nondurable-items that last less than 3 yrs when used on a regular basis • Food • Notebook paper • Some clothing

  6. CONSUMER • A person who uses good and services to satisfy wants and needs • Consumers indulge in consumption

  7. SERVICES • Another economic product • Work that is performed by someone • Haircuts • Home repairs • Teaching • Concerts (form of entrepreneurship) • Unlike a good, a service is intangible, something that cannot be touched

  8. VALUE • Refers to the worth that can be expressed in $s and cents • Economists faced early on the problem of why some things are worth more than others

  9. PARADOX OF VALUE • Contradiction between necessities and value • Economists knew scarcity is required for value, but it is not enough, by itself, to create value

  10. UTILITY • For something to have value, it must also have utility • The capacity to be useful and provide satisfaction • Is not fixed or measurable • may vary from one person to the next • A home computer may be of great satisfaction to one person but not to another • A good or service does not have to have utility for everyone, only for some

  11. UTILITY CONTINUED • Economists determined that for something to have value it must be SCARCE AND HAVE UTILITY • This is the solution to paradox of value • Diamonds are scarce and have utility • Therefore they have value that can be expressed in $s and Cents • Water has utility, but is not scarce • Therefore water has less value than diamonds

  12. WEALTH • In a economic sense, is the accumulation of those products that are tangible, scarce, useful, and transferable from one person to another • Goods are counted a wealth, but not services because they are not tangible

  13. The Circular Flow of Economic Activity • Wealth generated by an economy is made possible by the CFoEA • Features of the circular flow: • Market • Factor markets • Product markets

  14. Product Market • The market where goods and services are sold/traded. • EX: shoe market, fish market, stock market, super market • Factor Market – the market where the factors of production (resourses) are bought and sold • labor/ raw materials / land / factories / machinery/ tools for production

  15. MARKET • The key feature of the circular flow • Is a location, or other mechanism that allows buyers and sellers to exchange a certain economic product • Markets may be local, regional, national, or global • recently they have occurred in cyberspace

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