Splash Screen
Section 2-Key Terms
Chapter 1 Section 2
• Basic Economic Concepts
• productivity
• human capital
• division of labor
• specialization
• economic interdependence
Section 2-Key Terms
Content Vocabulary
• good
• consumer good
• durable good
• nondurable good
• service
• value
• paradox of value
• utility
• wealth
• market
• factor market
• product market
• economic growth
• productivity
• human capital
• division of labor
• specialization
• economic interdependence
Section 2-Key Terms
Academic Vocabulary
• transferable
• accumulation
• mechanism
Section 2
Goods, Services, and Consumers
Economic products are goods or services that are useful, relatively scarce, and transferable.
Section 2
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.
Section 2
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
Section 2
Goods, Services, and Consumers (cont.)
– Nondurable good
– Service is a work performed for someone.
Section 2
Value, Utility, and Wealth
The value of a good or service depends on its scarcity and utility.
Section 2
• 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.)
Section 2
• 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.)
Section 2
• A nation’s wealth is comprised of all tangible goods.
• This, however, does not mean that services are not useful or valuable.
Value, Utility, and Wealth (cont.)
Section 2
The Circular Flow of Economic Activity
The economic activity in markets connects individuals and businesses.
Section 2
• 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(cont.)
The Circular Flow of Economic Activity
Section 2
• 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.
The Circular Flow of Economic Activity(cont.)
Section 2
Productivity and Economic Growth
A nation’s economic growth is due to several factors.
Section 2
• 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.)
Section 2
• Ways to increase productivity
– Invest in human capital such as education, training, and health-care
– Division of labor and specialization
Productivity and Economic Growth (cont.)
Effect of Educationon Income
Profiles in Economics:Adam Smith
Section 2
• 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.
Productivity and Economic Growth (cont.)