Chapter 1 Section 2
• Basic
Economic
Concepts
• productivity
• human capital
• division of labor
• specialization
• economic
interdependence
Content Vocabulary
• good
• consumer
good
• paradox of
value
• utility
• durable good
• wealth
• nondurable
good
• market
• service
• value
• factor market
• productivity
• human capital
• division of labor
• specialization
• economic
interdependence
• product market
• economic growth
Academic Vocabulary
• transferable
• accumulation
• mechanism
Goods, Services, and Consumers
Economic products are goods
or services that are useful,
relatively scarce, and
transferable.
Goods, Services, and Consumers (cont.)
• Economics is concerned with economic
products—goods and services that satisfy
our wants and needs. They command a
price because they are scare and useful.
Goods, Services, and Consumers (cont.)
• There are different economic products that
consumers use.
– A good is a useful, tangible item.
• Capital goods are manufactured goods used
to produce other goods and services.
– Consumer good
– Durable good
Goods, Services, and Consumers (cont.)
– Nondurable good
– Service is a work performed for
someone.
Value, Utility, and Wealth
The value of a good or service
depends on its scarcity and
utility.
Value, Utility, and Wealth (cont.)
• In economics, value refers to worth that
can be expressed in dollars and cents.
• Adam Smith, a Scottish social philosopher,
came up with the term paradox of value
in 1776.
Value, Utility, and Wealth (cont.)
• Scarcity by itself does not fully explain how
value is determined.
• For a good or service to have value, it
must also have utility, which varies by
person.
Value, Utility, and Wealth (cont.)
• A nation’s wealth is comprised of all
tangible goods.
• This, however, does not mean that
services are not useful or valuable.
The Circular Flow of Economic Activity
The economic activity in
markets connects individuals
and businesses.
The Circular Flow of Economic Activity
(cont.)
• The circular flow of economic activity
generates wealth.
• The market is the key to this circular flow.
• Individuals earn their incomes in factor
markets.
The Circular Flow of Economic Activity
The Circular Flow of Economic Activity
(cont.)
• After individuals earn their incomes in
factor markets, they spend it in product
markets.
• Businesses then use this money to
produce more goods and services.
• This cycle of economic activity repeats.
Productivity and Economic Growth
A nation’s economic growth is
due to several factors.
Productivity and Economic Growth (cont.)
• When the circular flow becomes larger,
with more factors of production, goods,
and services flowing in one direction and
more payments in the opposite direction,
there is economic growth.
– Productivity is the most important
factor contributing to economic growth.
Productivity and Economic Growth (cont.)
• Ways to increase productivity
– Invest in human capital such as
education, training, and health-care
– Division of labor and specialization
Profiles in Economics:
Adam Smith
Effect of Education
on Income
Productivity and Economic Growth (cont.)
• The U.S. economy has a remarkable
degree of economic interdependence.
As a result, events in one part of the world
may have a dramatic impact here.