Econ 105

 

Chapter 2

 

Goods and Services are divided into four groups (CIGE)

-         Consumption Goods and Services

-         Investment Goods

-         Government Goods

-         Exports of Goods and Services

 

Consumption Goods and Services – Items that are bought and are used to contribute to an individual’s standard of living.

 

Investment Goods – Goods that are bought by businesses to increase their production.

 

Government goods and services – Items that are bought by the govt. in order for govt. to function.

 

Exports of goods and services – Items that are produced in the U.S. and sold to another country.

 

Factors of production are divided into four groups (LLCE)

-         Land

-         Labor

-         Capital

-         Entrepreneurship

 

Land – (Natural Resources) Things that come from nature and are used to produce G.a.S.

 

Labor – The work and time that all of the people devote to production of G.a.S. A contributor to better quality of labor is Human Capital.

1. Human Capital – The improvement that a laborer makes via education, o.j.t. and exp.

 

Capital – In terms of economics it is not the cash liquidity that we think of today, it is the infrastructure that enables business to produce.

 

Entrepreneurship – The human resource that organizes labor, land, and capital.

 

Rent – Income paid for the use of land

 

Wages – Income paid for the service of a labor.

 

Interest – Income paid for the use of capital.

 

Profit (or loss) – Income earned by an entrepreneur for running a business.

Functional Distribution of income – The percentage of income among the factors of production.

 

Personal income distribution – The percentage of income among individual persons.

 

The richest 20% at a minimum make over $90,000 a year and consume 49% of G.a.S.

 

Circular Flow Model – A model of the Economy that shows the circular flow of expenditures and incomes that result from decision makers’ choices, and the way those choices interact determine what, how and for whom goods and services are produced.

 

Households – Individuals or groups of people living together as decision-making units.

 

Firms – The institutions that organize the production of G.a.S.

 

Market – Any way in which sellers and buyers come together in order to exchange products.

 

Goods market – A market in which G.a.S. are sold.

 

Factor Market – Markets in which factors of production are bought and sold.

 

National Debt – The total amount that the govt. has borrowed to make expenditures that exceed tax revenue – to run a govt. deficit.

 

Macroeconomic performance has three dimensions:

-         Standard of living

-         Cost of living

-         Economic fluctuations

 

Standard of Living - The greater the value of production per person, the higher the standard of living, other things remaining the same.

 

The 184 economies of the of the world are classified by the International Monetary Fund (IMF) in to three broad groups:

-         Advanced Economies

-         Developing Economies

-         Transition Economies

 

Advanced Economies – The 28 countries that have the highest living standards.

 

Developing Economies – The standard of living in these economies varies a great deal, but in all cases, it is much lower than that in the advanced economies, and in some cases, it is extremely low.

 

Transitional Economies – They are in transition form a system of state-owned production, central economic planning, and heavily regulated markets to a system of free enterprise and unregulated free markets.

 

Cost of Living – The amount of money that it takes to buy the G.A.S. that an average family consumes.

 

Inflation – Measured by the percentage change in the cost of living.

 

Economic Fluctuations

 

Often time’s economic fluctuations are directly correlated with the economy.