Ch026 - 2.1 WHAT, HOW, AND FOR WHOM? Consumption goods and...

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Cobbe ECO2013F03 Chapter 2 Page 1 of 7 < When you have completed your study of this chapter, you will be able to C H A P T E R C H E C K L I S T Describe what, how, and for whom goods and services are produced in the United States. 1 Use the circular flow model to provide a picture of how households, firms, and governments interact. Describe the macroeconomic performance—standard of living, cost of living, and economic fluctuations—of the United States and other economies. 2 3 2.1 WHAT, HOW, AND FOR WHOM? < What Do We Produce? In macroeconomics, we divide the vast array of goods and services produced into final goods : Consumption goods and services Investment goods Government goods and services Exports of goods and services And intermediate goods , those goods and services wholly used up producing other goods and services. Consumption goods and services Goods and services that are bought by individuals and used to provide personal enjoyment and contribute to a person’s standard of living. For example, movies and Laundromat services. Investment goods Goods that are durable [will last] bought by businesses to increase their productive resources [capacity to produce]. For example, computers, cranes, buildings, and trucks. 2.1 WHAT, HOW, AND FOR WHOM? Government goods and services Goods and services that are bought by governments. For example, missiles, college professors, or bridges. Export goods Goods and services produced in the United States and sold in other countries. For example, grain, computers, or banking services. Note: The key to how things are classified this way is who buys it, not what it is! 2.1 WHAT, HOW, AND FOR WHOM? Figure 2.1 shows the relative magnitudes of the different types of goods and services in the US in 2002: 2.1 WHAT, HOW, AND FOR WHOM? Consumption 61% Investment 13% Government 17% Exports 9%
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Cobbe ECO2013F03 Chapter 2 Page 2 of 7 2.1 WHAT, HOW, AND FOR WHOM? < How Do We Produce? Factors of production The productive resources used to produce goods and services. Factors of production are grouped into four categories: Land Labor Capital Entrepreneurship 2.1 WHAT, HOW, AND FOR WHOM? Land Land All the “gifts of nature” that we use to produce goods and services. All the things we call natural resources. Land includes minerals, water, air, wild plants, animals,birds, and fish as well as farmland and forests. 2.1 WHAT, HOW, AND FOR WHOM? Labor Labor The work time and work effort that people devote to producing goods and services. Human capital The knowledge and skill that people obtain from education, on-the-job training, and work experience.
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Ch026 - 2.1 WHAT, HOW, AND FOR WHOM? Consumption goods and...

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