2. The Economizing Problem zHuman economic wants are unlimited zResources are scarce zAll economics depends directly on these two facts/assumptions zEconomics is about doing the best with what we have yit’s about using resources in the most efficient manner possible to create the most “stuff” to fulfill wants

3. Resources – Factors of Production zTypes of resources: yLand xAll natural resources (“gifts of nature”) Minerals, forests, arable land, oil, etc. xIncome from Land = Rent yCapital: human/physical xmachinery, factories, storage facilities, transportation xIncome from capital = Interest yLabor xAll physical and mental talents of individuals xIncome from Labor = Wages yEntrepreneurship xInitiative, Management, Innovation, Risk-taking xIncome from Entrepreneurship = Profit/Loss

4. Economic Systems zAn economic system is a particular set of institutional arrangements and mechanisms that respond to the economizing problem zThe market system -- “capitalism” zThe command system -- “communism”

5. The two economic sectors zHouseholds - Consumers individuals in their private lives acting as consumers and producers zBusiness – Firms - Producers firms seeking to maximize their profit by purchasing productive resources

6. The Market Economy and the Circular Flow Model zVirtually all major economies work through some version of the market economic system zIn this system, there are a number of different aspects to the market ya market to buy and sell resources ya market to buy and sell products ybusinesses yhouseholds

7. BUSINESSES HOUSEHOLDS RESOURCE FACTOR MARKET PRODUCT MARKET Building the Circular Flow Model - Step 1

8. BUSINESSES HOUSEHOLDS RESOURCE FACTOR MARKET RESOURCESINPUTS PRODUCT MARKET Building the Circular Flow Model - Step 2

9. BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCESINPUTS COSTSINCOMES GOODS & SERVICES SERVICES PRODUCT MARKET Building the Circular Flow Model - Step 3

10. BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCESINPUTS COSTSINCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES Building the Circular Flow Model - Step 4

11. BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCESINPUTS COSTSINCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES PAYMENT Goods+Services REVENUE Profit from goods and services Building the Circular Flow Model - Step 5

12. Factor Market BUSINESSES HOUSEHOLDS Money for wages, rent, profit, interest Product Market Goods and Services Money PAYMENT for Goods +Services Capital, land, labor, entrepreneurship

13. How can An Economy become more productive??? zSpecialization zTakes place when people, businesses, regions, and even countries concentrate on goods and services that they can produce better than anyone else

14. Division of Labor zthe breaking down of a job into separate, smaller, tasks, which are performed by different workers.

15. Assembly Line -A manufacturing process in which interchangeable parts are added to a product to create an end product zTechnological Advances zRobotics: machines perform physical tasks zInvention: new goods and services zInnovation: Improving a good or service zAutomation: machines control production

16. Labor/Workers z-Blue-collar workers: working class employee who perform manual/unskilled labor zEx: factory worker z-White-collar workers: perform tasks that require less physical labor. Skilled workers oftentimes are more highly paid than blue-collar workers. Ex: doctors, lawyers, administrators z-Pink-collar workers: workers who work in the charitable sector Ex: Susan G. Koman z-Green-collar workers: workers who work in the environmental sector Ex:

17. Economic decision making requires people to consider all the costs and benefits of a decision zFixed Costs z-Costs or expenses that are the same no matter how many units of a good are produced zEx: mortgage payments, rent zSalary [ie the manager]

18. Variable Costs z-Costs or expenses that change with the number of products produced zEx: wages, raw materials, electricity bills, water bills z-These costs increase when production increases and decrease when production decreases

19. Total Costs z-Fixed Costs + Variable costs= Total costs

20. Key Terms and Concepts zEconomizing problem zUtility zEconomic resources zLand zCapital zInvestment zLabor zEntrepreneurial ability zFactors of production zFull employment zFull production zProductive efficiency zAllocative efficiency zConsumer goods zCapital goods zProduction possibilities table zProduction possibilities curve zOpportunity cost zLaw of increasing opportunity costs zEconomic growth zEconomic system zMarket system zCommand system zResource market zProduct market zCircular flow model