What is Economics? Chapter 1, Lesson Two

Basic Economic Concepts Economics is concerned with economic products. Definition: Economic products are goods and services that are useful, relatively scarce, and transferable to others.

Goods and Services A good is an item that is economically useful or satisfies an economic want, such as a book, car, or MP3 Players A consumer good is intended for final use by individuals. When manufactured goods are used to produce other goods and services, they are called capital goods.

Goods and Services

Goods and Services

Goods and Services

Consumer Goods vs. Capital Goods If I use a computer at home for email and other personal use, it would be considered a consumer good. If the same computer is purchased by an accountant and she uses it to do people’s taxes, it is now a capital good because it is being used to produced another service (taxes).

Consumer Goods vs. Capital Goods An oven in my home that I use to bake casseroles for my family is a consumer good. An oven in a bakery used to make cookies and cakes that is sold to the public is a capital good.

Service Another type of economic product is service, or work that is performed for someone. This could include a haircut, home repairs, putting on a concert, doing your taxes for you, representing you in a court of law, or even educating someone.

Consumer A consumer is a person who uses goods and services to satisfy needs and wants.

The Circular Flow There are a few terms we must define before you can understand the circular flow. Definitions: --The market is a location or other mechanism that allows buyers and sellers to exchange a certain economic product.

The Circular Flow Definitions (cont.) --Factor markets are markets where factors of production (or resources or capital goods and services) are bought and sold. --Product markets are where producers sell their goods and services and consumers buy those consumer goods and services.

The Circular Flow

Value, Utility, and Wealth Value refers to a worth that can be expressed in dollars and cents. What is the value of a bottle of water? What is the value of a 1 carat diamond? What do you use the water for? What is the diamond for? Does this seem strange?

Value, Utility, and Wealth The Paradox of Value is the situation where some necessities, such as water, have little monetary value, whereas some non-necessities, such as diamonds have a much higher monetary value. Value isn’t calculated by scarcity alone, although it is part of it.

Value, Wealth, and Utility For something to have value, it must also have utility, or the capacity to be useful and provide satisfaction. Definition: utility is how much use or satisfaction someone gets out of something. It varies from person to person.

Value, Wealth, and Utility For something to have value, economists have found that it must be scarce AND have utility. Utility Maximization is getting the most usefulness from a scarce resource.

Value, Wealth, and Utility Wealth is the accumulation of those products that are tangible, scarce, useful, and transferable from one person to another.

Productivity and Economic Growth Economic growth occurs when a nation’s total output of goods and services increases over time. Productivity, or the measure of the amount of output produced by a given amount of inputs in a specific period of time, is one of the most important factors responsible for economic growth.

Productivity and Economic Growth Productivity goes up whenever more output can be produced with the same amount of inputs. Division of labor is an idea first developed by Adam Smith in The Wealth of Nations (one of the first economic books published in 1776).

Productivity and Economic Growth Division of labor takes place when work is arranged so that individual workers do fewer tasks than before. Because the worker is doing less, they should become really good at what they do, and should, in turn, be able to do more in the same amount of time (thus increasing productivity).

Productivity and Economic Growth Specialization takes place when factors of production perform tasks that they can do relatively more efficiently than others. Specialization and division of labor are huge determinants in productivity.

Productivity and Economic Growth Another contribution to productivity comes from investments in human capital, or the sum of the skills, abilities, health, and motivation of people.