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Chapter 19

Chapter 19. Objectives: 7.01, 7.04, 7.05, 7.06, 8.02, 8.03, 8.06, 9.01. Starter. The ability of a country to produce a product at a lower cost than another country is called ________. P.708 The NAFTA trade agreement was made among ______. p. 710

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Chapter 19

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  1. Chapter 19 Objectives: 7.01, 7.04, 7.05, 7.06, 8.02, 8.03, 8.06, 9.01

  2. Starter • The ability of a country to produce a product at a lower cost than another country is called ________. P.708 • The NAFTA trade agreement was made among ______. p. 710 • A major challenge facing developing countries is ____. P.724

  3. Economic Resources • Goods – a physical product • Services – like entertainment or lawn care • Factors of production: resources necessary to produce goods/services • Natural Resources: ‘gifts of nature’ • Labor: human resources • Capital: manufactured goods used to make other goods and services (like a hammer) • Entrepreneurs: an individual who starts a new business, introduces new products, improves processes; are innovators and willing to take risks

  4. Economic Resources • Gross Domestic Product: a measure of the economy’s size; the total value in dollars of all the final goods and service produced in a country during a single year • Need to know the relative value of each good • Used as an indicator of standard of living: • Quality of life based on possession of necessities and luxuries to make like easier • Only measures quantity, not quality

  5. Economic Resources • Net Domestic Product: is the GDP subtracted by the loss in value of capital goods by depreciation • Depreciation is the loss of value due to wear and tear on a product

  6. Economic Activity • Market: the free and willing exchange of goods and services between buyers and sellers; not necessarily a place. • Can be global, national, regional, or local • Resources, goods, and services flow in a circular pattern • Market is made of different sectors

  7. Economic Activity • Consumer Sector: • Consumers earn income in factor markets: • Markets where productive resources are bought/sold • Earn wages, salaries, etc. for labor • Business Sector: • Individuals spend income in product markets: • Markets where producers offer goods/services for sale • Businesses sell goods for payment and then use that payment to buy resources, labor, capital. • Smaller than the consumer sector

  8. Economic Activity • Government Sector: • Made of all levels of gov’t • Gov’t buys productive resources from the factor markets and goods/services from product markets • For example, military buys trucks, planes, & ships • Gov’t also produces goods and services • Public Universities, hospitals, transportation • Usually the second largest sector

  9. Economic Activity • Foreign Sector: • Every other country in the world • We buy from and sell to the Foreign Sector • Usually the smallest sector

  10. Economic Growth • Occurs when total output of goods/services increases over time • Productivity: efficient use of resources • measure of amount of output produced by given level of inputs in specific period of time • Specialization: when people, businesses, regions, & countries concentrate on goods or services that they can produce better than anyone else • Increases productivity

  11. Economic Growth • Division of Labor: breaking down a job into small tasks performed by different workers • also improves productivity • Human capital: Businesses invest in people’s skills, abilities and motivation to increase productivity • Economic Interdependence: because of specialization people rely on each other

  12. Capitalism • 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 grow with minimal gov’t interference. • Thus America’s economy is a combination of the two

  13. Capitalism • Factors helping capitalism to succeed: • Markets • Connect the different sectors • Help determine prices • Consumer is “king” of the market • Economic Freedom • Can choose your occupation, what to buy, sell, etc. • You also have the freedom to fail • Private Property Rights: • Freedom to own, use, or dispose of your property (without interfering with others) • Gives people motivation to work hard and take care of property

  14. Capitalism • Competition • The struggle between buyers and sellers to get the best products at the lowest prices • Helps keep prices low, quality high • Profit Motive • Profit: the amount of money left over after all the costs of production have been paid • A large factor in growth of free-enterprise • Voluntary exchange • the act of buyers and sellers freely/willingly engaging in market transactions • The buyer and seller both believe they will profit

  15. History of Capitalism • Adam Smith • Scottish philosopher and economist • Wrote The Wealth of Nations (1776) • Individuals, when left alone, work for their own self-interest; they would be guided by an “invisible hand” • The basic principles of economics • Laissez-faire economics based on book • French phrase meaning “to let alone” • Means gov’t’s role is only to ensure free competition • Many founding fathers influenced by book

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