Basic Economic Concepts

Warm Up Think of 3 different businesses. Write them down. For each, determine the specific factors of production needed to run these businesses.

Economic Products Goods, Services, and Consumers Goods: Consumer goods: final use for individuals (CDs, books, TVs) 2. Capital goods: goods to produce other goods (oven in a bakery, computer in a school) Services: haircuts, home repairs, legal services, doctors, etc. Consumers: person who uses the goods and services (people)

Value, Utility and Wealth What gives something value? How is that represented? Utility: the capacity to be useful and provide satisfaction (this can vary depending on the person) How much utility do you receive from a cheese pizza? A Justin Timberlake concert? Wealth: all products that are tangible and transferable (buildings, cars, natural resources, clothing) but not services.

Circular Flow Markets: a location that allows buyers and seller to exchange products 1. Factor Markets: markets where productive resources are bought/sold 2. Product Markets: markets where producers sell their goods and services to customers

Partner Practice 1. In your notebooks, draw a circular flow diagram for the following situation: In the economy of Atlantis, firms produce fish and potatoes, and households buy fish and potatoes. Households also provide the land and labor to firms. 2. Identify where in the flow of money or physical things (goods and services, or resources) each of the following impacts would occur. Describe how the impact spreads around the circle. A devastating hurricane floods many of the potato fields. A very productive fishing season yields a very large number of fish caught. The inhabitants of Atlantis discover Dancing with the Stars and spend several days a month at dance classes.

More Practice An economist might say that colleges and universities “produce” education, using faculty members, books, etc. as inputs. Education is “consumed” by households. 1. Construct a circular flow diagram to represent the sector of the economy devoted to college education: colleges represent firms, and households provide inputs to universities. 2. What is being bought and sold in each direction? 3. What would happen in the model if the government decided to subsidize 50% of all college students’ tuition?

Productivity and Economic Growth Economic growth—nation’s output increases over time Productivity—efficient use of scarce resources Example: Year 1—it costs $1000 and 1 day to produce 500 unit Year 2—it costs $1000 and 1 day to produce 750 units Division of labor and specialization 1. Example:

Economic interdependence: “My choices affect your choices” Human capital Sum of skills, health, abilities, motivation of people Investing in human capital – examples? Economic interdependence: “My choices affect your choices”

Read pages 12 – 17, questions 3 and 5 AND read pages 19 – 25, questions page 25: 2, 3 and 4. Due Monday.