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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.

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• 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.)

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• 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.

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• 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.)