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Understanding the basic operation of an economic system

Understanding the basic operation of an economic system. Allocating resources in a market economy. limited resources or The Factors of Production …. The root of the scarcity problem. Factors of Production. Groups of resources used to make all goods and services Land, labor, capital,

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Understanding the basic operation of an economic system

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  1. Understanding the basic operation of an economic system Allocating resources in a market economy

  2. limited resources or The Factors of Production… The root of the scarcity problem

  3. Factors of Production Groups of resources used to make all goods and services • Land, • labor, • capital, • entrepreneurship Privately owned in a market system

  4. LAND Natural resources

  5. LABOR Any effort a person devotes to a task for which that person is paid

  6. CAPITAL Any human made resource that is used to create other goods and services • Physical capital goods like building and tools for the purpose of production • Human capital is the knowledge and skills a worker gains through education and experience

  7. ENTREPRENEURSHIP A person who assembles the factors of production to create goods and services Risk-taker!

  8. Circular flow of economic activity

  9. Tying it all together… The Pillars of Free Enterprise Maintaining a proper functioning a free market is not easy or simple

  10. PAYMENTS: Economic Incentive • RENT • SALARY • INTEREST • PROFIT • LAND • LABOR • CAPITAL • ENTRE-PRENEURSHIP

  11. Why money…

  12. Government’s Role? From Res. Owners to Gov’t • taxes • Productive services From Bus. Owners to Gov’t • taxes • business services From Gov’t to Res Owners • money payments • Gov’t services From Gov’t to Bus Owners • money payments • Gov’t services

  13. Gross Domestic Product Adapted from: http://www.investopedia.com/ask/answers/199.asp  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

  14. HOW DO THE FOUR FACTORS OF PRODUCTION AND THE CIRCULAR FLOW OF ECONOMIC ACTIVITY RELATE TO … GOVERNMENT SPENDING? UNEMPLOYMENT? BUSINESS GROWTH? MINIMUM WAGE?

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