Econ Ch. 2 Notes
- Goods/services: - consumption goods + services - capital goods - government goods
+ services - export goods + services
- Consumption goods + services - items that are bought by individuals + used to provide
personal enjoyment and contribute to a person’s quality of life. Ex. Housing, SUVs,
vitamin water, movies, dental services, downhill skiing lessons.
- capital goods - goods that are bought by businesses to increase their productive
resources. Ex. Assembly lines, shopping malls, airplanes, oil tankers.
- government goods and services - Items that are bought by governments. Ex. Missiles,
weapon systems, travel services, Internet services, police protection, roads, paper,
- export goods and services - Items that are produced in one country and sold in other
countries. Ex. U.S. export goods + services include the airplanes produced by Boeing
that Singapore Airlines buys computers produced by Dell that Europeans buy, 1
censes sold by U.S. ﬁlm companies to show U.S. movies in European move theaters.
- consumption goods + services have the largest share and a share that doesn’t
- The volume of capital goods produced ﬂuctuates as the economy cycles from boom to
- Goods + services bought by governments are close to a ﬁfty of total production and
export goods around one tenth.
- goods + services, smaller categories (health services 13%) real estate 12%. Then
education, then retail and wholesale trades + transportation + storage.
- goods (construction 5%) utilities, food, chemicals each account for 2% or less.
- Goods and services are produced by using productive resources. Economists call the
productive resources factors of production.
- factors of production - the productive resources that are used to produce goods and
services - land, labor, capital, and entrepreneurship.
- land - The “gifts of nature” or natural resources, that we use to produce goods and
- Land includes land in the everyday sense, minerals, energy, water, air, and wild plants,
animals, birds, and ﬁsh. Some resources are renewable, some aren’t. - The U.S. Geological Survey maintains a national inventory of the quantity + quality of
natural resources + monitors changes to that inventory.
- U.S. covers 2 billion acres. 45% of the land is forest, lakes, national parks. 50% is
used for agriculture, 5% urban. Urban land is growing, agricultural land is shrinking.
- Labor - the work time and work effort that people devote to producing goods +
services. Labor includes the physical + mental efforts of all the people who work on
forms and construction sites and in factories, shops, and ofﬁces.
- The Census Bureau and Bureau of Labor Statistics measure the quantity of labor at
work every month.
- Quantity of labor increases as the adult population increases.
- Quantity of labor increases if a larger percentage of the population takes jobs.
- The quality of labor depends on how skilled people are.
- human capital - the knowledge and skill that people obtain from education, on-the-job
training, and work experience.
- Human capital improves the quality of labor and increase the quantity of goods and
services that labor can produce.
- capital - consists of the tools, instruments, machines, buildings, and other items that
have been produces in the past and that businesses now use to produce goods +
services. Ex. screw drivers, computers, auto assembly lines, ofﬁce towers, dams,
power plants, airports, shirt factories, shopping malls.
- Capital also includes inventories of unsold goods or of partly ﬁnished goods on a
- Capital includes infrastructure capital - high ways + airports.
- Human capital makes labor more productive.
- The Bureau of Economic Analysis in the U.S. Department of Commerce keeps track of
the total value of capital in the U.S. and how it grows over time.
- Financial capital - not productive resources, money, stocks, bonds. They enable
people to provide businesses with ﬁnancial resources, they are not used to produce
goods and services. They are not capital.
- entrepreneurship - the human resource that organizes labor, land, and capital to
produce goods and services. - Who gets goods + services depends on incomes of people.
- rent income paid for the use of land.
- wages - income paid for the services of labor.
- interest - income paid for the use of land.
- proﬁt (or loss) - income earned by an entrepreneur for running a business.
- functional distribution of income - the distribution of income among the factors of
- personal distribution of income - the distribution of income among households.
- advanced economics - Richest 2% countries (or areas). 1 billion (15% of the world’s
population) live in advanced economics.
- emerging market economies are the 28 countries in Central + Eastern Europe + Asia
that were until the early 1990s part of the Soviet Union or are of its satellites.
- Russia is the largest of these economies.
- Almost 500 million people live in these countries - only about half of the number in the
advanced economies. These countries are important because they’re emerging from a
system of state-owned production, central economic planning, and heavily regulated
markets to a system of free enterprise and unregulated markets.
- Developing economies are the 118 countries in Africa, Asia, and the Middle East,
Europe, and central and South America that have not yet achieved high average
incomes for their people.
- More than 5 billion people - almost four out of every ﬁve people - live in developing
- Pie chart pg. 42 - good example of the global economy.
- energy - oil, natural gas, coal are non-renewable.
- At the current rate our world’s oil will last for about 40 years, gas 60 years, coal 200
- Wind + solar provide 2% of the world’s electricity. - food - large part of developing economies. Advanced economies produce 1/3 of
world’s food. Total production is much larger in advanced economies than in
- Energy sources in the world economy pie charts pg. 43.
- What is produced in the developing economies contrasts sharply with that of the
- Each country or region has its own blend of land, labor, and capital.
- Education differences.
- Advanced economy, amount of capital available for producing goods and services.
- Transportation system - connects highways/cities.
- The more advanced the economy, the greater are the amount + sophistication of the
capital equipment used in production.
- Personal distribution of income - uneven.
- International distribution - in