Goods, Services, Consumers

Economics Ch. 1 Sec. 2

Basic Economic Concepts

Main Idea – Economic products are goods or services that are useful, relatively scarce, and transferable. They help us satisfy our wants and needs.

- A good is a tangible (can be touched) item that satisfies a want. - When manufactured goods are used to produce other goods and services they are called capital goods - Goods for final use by individuals are consumer goods - Durable goods – last three years or more when used regularly - Nondurable goods – last fewer than three years when used regularly

Services

- A service is work that is performed for someone else - Services are different than goods in the sense that they are NOT tangible

Consumers

- People who use good and services to satisfy their wants - Involved themselves in consumption (process of using up goods and services to satisfy wants and needs)

Value, Utility, and Wealth

Main Idea – The value of a good or service depends on its scarcity and utility.

- Value (in economics) refers to a worth expressed in dollars and cents.

The Paradox of Value

- Adam Smith one of the first to describe how market works. - Observed how some necessities had low monetary (financial) value while some nonnecessities had very high value. This contradiction is known as paradox of value.

Utility

- Something must also have utility in order to have value. Utility is the capability of being useful and provide satisfaction. It is not fixed or measureable like weight and height. - Utility can vary from one person to the next.

- For something to have monetary value, it must be scarce and have a utility. - Diamonds are scarce and have utility so high MV. Water has utility but is not scarce enough so low MV. Wealth

- Accumulation of products that are tangible, scarce, useful, and transferable from one person to another is wealth. - A nation’s wealth is comprised of all tangible items that can be exchanged. - Goods are counted as wealth but services are not because they are intangible. - If material possessions were taken away, its people could restore them. If a country’s people were taken away, its wealth could deteriorate (Adam Smith, The Wealth of Nations, 1776).

The Circular Flow of Economic Activity

Main idea: The economic activity in markets connects individuals and businesses.

- The market allows buyers and sellers to exchange a specific product. - Markets may be local, national, or global and can exist in cyberspace.

Factor Markets

- Factors of productions are bought and sold. - Entrepreneurs hire labor for wages and salaries, acquire land in return for rent, and borrow money.

Product Markets

- Individuals spend their income in product markets. - Businesses use this money to produce more goods and services which allows the cycle of economy activity to repeat itself.

Productivity and Economic Growth

Main idea: A nation’s economic growth is due to several factors.

- A nation grows when the total amount produced of goods and services increases over time. - Productivity is the most important factor contributing to economic growth.

Productivity

- Productivity goes up whenever more can be produced with the same amount of resources. -Often discussed in labor, but applies to all factors of production.

Investing in Human Capital

- Human capital, sum of people’s skills, abilities, health, knowledge, and motivation. - Government investment by providing education and health care. - Businesses investment by training and other programs that improves workers’ skills - Individuals invest in own education by completing high schools or attending college.

Division of Labor and Specialization

- Organizing work so each individual worker completes a separate part of the work. - Specialization occurs when the worker performs the specific task he or she does best. - Henry Ford assembly line cut the assembly time from 1 ½ day to just over 90 minutes and reduced $ by 50%