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Understanding the basic Understanding the basic operation of an operation of an
economic systemeconomic system
Allocating resources in a Allocating resources in a market economymarket economy
limited resources limited resources or or The Factors of The Factors of ProductionProduction……
The root of the scarcity The root of the scarcity problemproblem
Factors of ProductionFactors of ProductionGroups of resources used to make Groups of resources used to make all goods and servicesall goods and services
Land, Land, labor, labor, capital, capital, entrepreneurshipentrepreneurship
Privately owned in a market
system
LABORLABOR
Any effort a person devotes to a Any effort a person devotes to a task for which that person is task for which that person is paidpaid
CAPITALCAPITAL
Any Any human made human made resource that resource that is used to create other goods is used to create other goods and servicesand services
•Physical capitalPhysical capital goods like goods like building and tools for the purpose of building and tools for the purpose of productionproduction
•Human capitalHuman capital is the knowledge is the knowledge and skills a worker gains through and skills a worker gains through education and experienceeducation and experience
ENTREPRENEURSHIPENTREPRENEURSHIP
A person who assembles the factors of production to create goods and services
Risk-taker!
Tying it all together…Tying it all together…Maintaining a proper functioning Maintaining a proper functioning
a free market is not easy or simplea free market is not easy or simple
The Pillars of Free Enterprise
PillarPillar Explanation (From producer Explanation (From producer view & consumer view)view & consumer view)
ExampleExample
Private Property For purposes of business enterprise, or as a result of consumer choice
Factory ownerHome ownerCar owner
Choice For purposes of production and profit, to fulfill consumer wants/needs
open a businessChoose a profession jobConsumer choice
Voluntary Exchange Where the producer and consumer come together: the marketplace (willingly buy or sell)
Places of exchange (mall, internet)Contracts
Competition Within industries –maintain quality and fair prices, As consumers (demand) push prices up
Gas stations, Airline industries, Supermarkets, Stock Market
Economic Incentives For purpose of profit, wage, interest, Or “get a good deal”
Successful entrepreneurs make big money -profitSalary, Fringe benefits
PAYMENTS: Economic IncentivePAYMENTS: Economic Incentive
RENTRENT
SALARYSALARY
INTERESTINTEREST
PROFITPROFIT
•LAND
•LABOR
•CAPITAL
•ENTRE-PRENEURSHIP
Government’s Role?Government’s Role?From Res. Owners to Gov’tFrom Res. Owners to Gov’t
– taxes taxes – Productive servicesProductive services
From Bus. Owners to Gov’tFrom Bus. Owners to Gov’t– taxes taxes – business servicesbusiness services
From Gov’t to Res OwnersFrom Gov’t to Res Owners– money paymentsmoney payments– Gov’t servicesGov’t services
From Gov’t to Bus OwnersFrom Gov’t to Bus Owners– money paymentsmoney payments– Gov’t servicesGov’t services
Gross Domestic Product Gross Domestic Product one of the primary indicators used to gauge the health of a country's economy
at its most basic: a total of what everyone has earned in a year (income approach), or by a total of what everyone spent (expenditure method).
what GDP represents, has a large impact on nearly everyone within that economy
Adapted from: http://www.investopedia.com/ask/answers/199.asp