Essential Foundations of Economics Chapter
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Questions and Answers

What are consumption goods and services primarily used for?

  • To serve as financial resources for investments
  • To support the development of human capital
  • To provide personal enjoyment and improve standard of living (correct)
  • To increase a company's production capacity

    • What type of goods are considered capital goods?

  • Financial resources like stocks and bonds
  • Goods consumed by individuals for leisure
  • Goods bought by businesses to enhance production (correct)
  • Natural resources used in daily consumption

    • Which of the following is NOT considered a factor of production?

  • Investment returns (correct)
  • Capital
  • Labor
  • Land

    • What does the concept of 'human capital' refer to?

    <p>The knowledge and skills acquired through education and experience</p> Signup and view all the answers

    Which of the following best describes the category of land in the factors of production?

    <p>Gifts of nature used to produce goods and services</p> Signup and view all the answers

    How would you define capital in the context of production?

    <p>Tools and machines created in the past for current production efforts</p> Signup and view all the answers

    Which statement correctly identifies an example of capital goods?

    <p>Cranes used at a construction site</p> Signup and view all the answers

    What is the primary purpose of the circular flow model in economics?

    <p>To demonstrate how goods, services, and money circulate in the economy</p> Signup and view all the answers

    What role do entrepreneurs play in the economy?

    <p>They organize labor, land, and capital.</p> Signup and view all the answers

    Which of the following is NOT a factor of production income?

    <p>Sales Revenue</p> Signup and view all the answers

    What percentage of income was accounted for by wages in the functional distribution of income in 2017?

    <p>68%</p> Signup and view all the answers

    Which group earned only 3.5% of total income in 2017?

    <p>The poorest 20%</p> Signup and view all the answers

    How many people live in advanced economies?

    <p>About 1 billion</p> Signup and view all the answers

    What is the estimated value of global production in 2018?

    <p>$135 trillion</p> Signup and view all the answers

    Which of the following best describes developing economies?

    <p>They are primarily located in Africa, Asia, the Middle East, Europe, and the Americas.</p> Signup and view all the answers

    What would your share of global production be if it were shared equally among the world's population?

    <p>$18,000</p> Signup and view all the answers

    What is a key characteristic of developing economies regarding their manufacturing industries?

    <p>They have large and growing manufacturing industries.</p> Signup and view all the answers

    Which sector is experiencing growth in advanced economies as agriculture and manufacturing decrease?

    <p>Services</p> Signup and view all the answers

    What is a significant factor that contributes to differences in human capital between economies?

    <p>Availability of healthcare</p> Signup and view all the answers

    How do advanced economies generally differ from developing economies in terms of physical capital?

    <p>They use more capital-intensive technologies.</p> Signup and view all the answers

    What determines who receives goods and services in the global economy?

    <p>Income distribution</p> Signup and view all the answers

    In the context of worldwide income distribution, which region had the lowest average income reported in 2018?

    <p>Africa</p> Signup and view all the answers

    What does the circular flow model represent in an economy?

    <p>The interactions between households and firms.</p> Signup and view all the answers

    What is a characteristic of households in the context of the circular flow model?

    <p>They act as decision-making units.</p> Signup and view all the answers

    Which statement best describes factor markets?

    <p>They involve the buying and selling of factors of production.</p> Signup and view all the answers

    What is the primary function of goods markets?

    <p>To allow firms to supply goods and services.</p> Signup and view all the answers

    What characterizes real flows in the economy?

    <p>They involve the flow of factors of production and goods.</p> Signup and view all the answers

    Which statement about money flows is true?

    <p>Firms pay households for services of factors they provide.</p> Signup and view all the answers

    How does the federal government finance its expenditures?

    <p>Through collecting personal income taxes and corporate taxes.</p> Signup and view all the answers

    What type of taxes are primarily collected by state and local governments?

    <p>Sales taxes, property taxes, and state income taxes.</p> Signup and view all the answers

    What is a major function of governments within the circular flow?

    <p>Governments buy goods and services from firms.</p> Signup and view all the answers

    Which of the following best explains a budget deficit?

    <p>When government spending exceeds tax revenues.</p> Signup and view all the answers

    What are the two main activities through which households and firms in the U.S. interact with other economies?

    <p>International trade and international finance</p> Signup and view all the answers

    What term refers to goods and services purchased from other countries by the U.S.?

    <p>Imports</p> Signup and view all the answers

    What happens when the value of U.S. imports exceeds the value of U.S. exports?

    <p>The U.S. must borrow from the rest of the world</p> Signup and view all the answers

    What is the flow labeled as red in the international trade diagram?

    <p>Expenditure by Americans on imports</p> Signup and view all the answers

    How does Boeing manufacture the Dreamliner at lower costs?

    <p>By utilizing more than 400 firms across 4 continents</p> Signup and view all the answers

    What do household and firm interactions in goods markets and financial markets represent?

    <p>Both domestic and international transactions</p> Signup and view all the answers

    What is the primary motivation behind the decisions made by Boeing and its supplier firms?

    <p>To act in self-interest while maximizing production efficiency</p> Signup and view all the answers

    Which of the following best describes the significance of the circular flows between nations?

    <p>They connect nations through trade and finance</p> Signup and view all the answers

    Study Notes

    Essential Foundations of Economics

    • The book is titled "Essential Foundations of Economics, Ninth Edition" by Bade and Parkin.

    Chapter Checklist

    • The chapter checklist for "The U.S. and Global Economies" outlines key learning objectives: describe production in the U.S. and the global economy, and use the circular flow model for both.

    What, How, and For Whom?

    • What do we produce?

    • Consumption goods and services (e.g., movies, laundry services)

    • Capital goods (e.g., cranes, trucks)

    • How do we produce?

    • Factors of production:

    • Land (natural resources: minerals, water, air, plants, animals, farmland, forests)

    • Labor (work effort; human capital: knowledge, skills, education, training, experience)

    • Capital (tools, instruments, machinery, buildings, semifinished goods, office buildings, computers)

    • Entrepreneurship (organizing labor, land, and capital; new ideas, business decisions, risk-taking)

    • For whom do we produce?

    • Factors of production are paid incomes:

    • Rent (land)

    • Wages (labor)

    • Interest (capital)

    • Profit (entrepreneurs)

    • Functional distribution of income: distribution of income among factors of production.

    • Personal distribution of income: distribution of income among households.

    • 2017 functional distribution of income (example data): Wages (68%), Rent, interest, and profit (32%).

    • 2017 personal distribution of income (example data): Poorest 20% earned 3.5% of total income; Richest 20% earned 50% of total income.

    The Global Economy

    • The People:

    • U.S. population (April 10, 2019) = 328,701,000

    • World population = 7,564,563,000

    • The Economies:

    • Advanced economies: The richest 39 countries (or areas); almost 1 billion people (15% of world's population) live in advanced economies.

    • Emerging market and developing economies: Other 155 economies; in Central and Eastern Europe and Asia (almost 500 million people); in Africa, Asia, the Middle East, Europe, and Central & South America (more than 5.5 billion people).

    • 2018 global production = ~$135 trillion

    • If the global pie were shared equally: $18,000 per person

    • Differences in What is Produced:

    • Developing economies: large, expanding manufacturing industries (textiles, footwear, sports gear, etc.).

    • Advanced economies: smaller portion of food production; larger proportion of services.

    • Similarities in What is Produced:

    • Retail industries are similar in structure across economies.

    • Agriculture and manufacturing are a shrinking portion of production, while services are growing.

    • How in the Global Economy:

    • Human capital differences: Education, training, experience, physical ability, and health

    • Physical capital differences: Transportation systems, technologies (e.g., capital-intensive technologies in advanced economies).

    • For Whom in the Global Economy?

    • Income influences access to goods/services.

    • 2018 average income (example data): U.S. ~171/day,EU 171/day, EU ~171/day,EU 119/day, Russia ~80/day,China 80/day, China ~80/day,China 50/day, India ~21/day,Sub−SaharanAfrica 21/day, Sub-Saharan Africa ~21/day,Sub−SaharanAfrica 11/day

    The Circular Flow Model

    • A model of the economy showing flows of expenditures and incomes from decision-makers.
    • Interactions in markets determine what, how, and for whom goods/services are produced.
    • Households and Firms: Households are individuals or groups acting as decision-making units; firms organize production of goods/services.
    • Markets: Arrangement where buyers and sellers interact (Goods markets, Factor markets)
    • Real Flows and Money Flows:
    • Factor markets: Households provide factors of production (labor, land, capital); firms use these factors in production.
    • Goods markets: Firms sell goods/services; households purchase them.
    • Governments: Federal, state, and local. Federal government's expenditures: goods/services, social safety nets, and transfer payments. Taxes-funding government expenditures (Personal income, corporate, social security).
    • International Trade: Households/firms from one country interact with those in other countries through buying/selling goods/services.
    • International Finance: Borrowing/lending between countries. U.S. imports > exports=borrowing from rest of world.

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    Essential Foundations of Economics 9th Edition PDF

    Description

    Explore the key concepts from 'Essential Foundations of Economics' regarding the U.S. and global economies. This quiz covers production goods, factors of production, and the circular flow model. Test your knowledge on how goods and services are produced and who they are produced for.

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