Basic Economic Concepts

Goods A useful, tangible item that satisfies a want. Goods intended for final use by individuals are consumer goods. A good that lasts more than three years with regular use are durable goods. A nondurable good is an item that lasts for fewer than three years when used regularly.

Services Service – work that is performed for someone Both goods and service are purchased to satisfy a want The main difference between a good and a service is that goods are tangible, while a service is not.

Consumers Consumers are the people who use goods and services to satisfy their wants and needs. Consumers engage in consumption, the process of using up goods and services

Utility For something to have value, it must also have utility. Utility – The capacity to be useful and provide satisfaction. Utility is not something that is fixed and measurable, it can vary from one person to the next.

Value Value – The worth that can be expressed in dollars and cents. Why do some things have more value than others? Paradox of Value – Some necessities, such as vegetables, have a very low monetary value, while some non-necessities, such as diamonds, have a very high value. For something to have value, it must be scarce and have utility. In economics we are the most concerned with monetary value, though there are other measures of value like moral and social.

Wealth The accumulation of products that are tangible, scarce, useful, and transferable from one person to another is wealth. Services are not counted as wealth because they are not tangible, but this does not mean that they are not useful or valuable. When looking at the wealth of a nation, we look to services and skills of the people to determine the stability of the wealth.

The Circular Flow of Economic Activity Factor Markets Individuals earn their incomes in factor markets, where the factors of production are bought and sold. This is where entrepreneurs hire labor for wages and salaries, acquire land in return for rent, and borrow money. You participate in the factor market when you work and sell your labor to an employer.

The Circular Flow of Economic Activity Product Market The place where producers sell their goods and services. Wages and salaries that individuals receive from businesses in the factor markets return to businesses in the product markets Businesses use the money they receive in the product markets to produce more goods and services, and the cycle of economic activity repeats itself.

The Circular Flow of Economic Activity

Economic Growth Economic Growth occurs when a nation’s total output of goods and services increases over time. Productivity – the measure of goods and services produced with a given amount of resources in a specific period of time. Investments in human capital are a key to increasing productivity and ultimately producing economic growth. The division of labor is a way of organizing work so that each individual worker completes a separate part of the work. A worker who performs a few tasks many times a day and is engaged in work specialization, is more productive than one who performs many tasks a day.

Economic Interdependence The condition where one economy relies on others and others rely on it to provide goods and services that are consumed. The U.S. economy has a high degree of economic interdependence. This is not necessarily a bad thing, gains in productivity and income that result from specialization almost always offset the costs associated with the loss of self-sufficiency.