ECN 112 Chapter 2 Lecture Notes
2.1 What Goods and Services are Produced?
What We Consume
In the United States, medical care is the single largest consumption category. 2.
Over time, incomes in the United States have increased and our expenditure on necessities has fallen as a percentage of income while expenditure on services has risen as a percentage of income. B.
What We Produce
Most of what we consume is produced in the United States, and most of what we produce is services. 1.
As a percent of total production, real estate services represents the largest item produced. C.
What We Buy From the Rest of World
We sell goods to other countries and also buy goods, such as oil, produced in other countries. 2.2 How Are Goods and Services Produced?
We use productive resources to produce the goods and services we buy. Economists call the productive resources factors of production, and group them into four categories. A.
Land includes all the “gifts of nature,” or natural resources that we use to produce goods and services. Land includes land (in the everyday sense), minerals, energy, water, air, animals and plants. B.
Labor is the work time and work effort people devote to producing goods and services. 1.
As the population increases or if a larger percentage of the population works, labor increases. 2.
Human capital is the knowledge and skill that people obtain from education, on-the-job-training and work experience. 3.
As human capital increases, the quality of labor increases. C.
Capital consists of the tools, instruments, machines, buildings, and other constructions that have been produced in the past and that businesses use to produce goods and services. It does not include financial capital like money, stocks, or bonds. D.
Entrepreneurship is the human resource that organizes labor, land, and capital. 2.3 For Whom Are Goods Produced?
Incomes determine who gets the goods and services produced. People...
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