Introduction to Economics - Chapter 1

Economics studies how people make decisions with limited resources.

Economists ask how to best use limited resources to satisfy unlimited wants.

Specific principles and reasoning used by economists in their analysis.

Economists study human behavior to understand economic decisions.

Economic thinking helps people make better decisions in everyday life.

Goods are tangible products like cars or clothes. Services are intangible actions like haircuts or banking.

Products bought by individuals for personal use and enjoyment, like a new phone or a pizza.

Products bought by businesses to increase production, like machinery or a new factory.

Resources used to produce goods and services. They include land, labor, capital, and entrepreneurship.

Natural resources used in production, like forests, water, and minerals.

Human effort and time used in production, influenced by skills and knowledge.

Tools, machinery, and buildings used in production, made by humans.

The ability to combine other factors of production to create new goods and services.

How national income is divided among the factors of production: land, labor, capital, and entrepreneurship (rent, wages, interest, and profit).

How national income is divided among households or individuals.

The richest 39 countries or areas, representing about 15% of the world's population.

Economies in Central and Eastern Europe and Asia, transitioning towards higher economic development.

Economies in Africa, Asia, the Middle East, Europe, and Central and South America, generally characterized by lower income levels and slower economic growth.

The total worth of goods and services produced worldwide.

The total global production value, metaphorically represented as a pie.

If the global production value (pie) were shared equally, each person would receive around $18,000.

Advanced economies focus more on services and technology, while developing economies emphasize manufacturing and agriculture.

The quality of labor is influenced by factors like education, training, experience, physical ability, and health, where advanced economies generally have greater levels of these factors.

Advanced economies have more developed infrastructure, like transportation systems, and use more capital-intensive technologies in production.

The distribution of goods and services depends on the income levels of people in different countries.

The circular flow model illustrates the movement of expenditures and incomes between households and firms in an economy.

Households are individuals or groups of people living together as decision-making units.

Firms are businesses that produce goods and services and employ factors of production.

Markets are where households and firms interact to determine the prices and quantities of goods and services produced.

A place where buyers and sellers come together to exchange goods, services, or factors of production.

Markets where factors of production (land, labor, capital, entrepreneurship) are bought and sold.

The movement of goods, services, and factors of production in the economy.

The movement of money in the economy, like payments for goods, services, and factors of production.

The federal government spends on goods and services, social security and welfare benefits, and transfers to state and local governments.

The federal government collects taxes (like personal income, corporate, and social security taxes) to fund its spending.

State and local governments spend on goods and services and welfare benefits for their residents.

State and local governments collect taxes (like sales, property, and state income taxes) to fund their spending.

The exchange of goods and services between firms and households in different countries. Includes imports (buying from other countries) and exports (selling to other countries).

The borrowing and lending of money across national borders. Occurs when firms or governments seek lower interest rates or when a country's imports exceed its exports.

US households and firms engage in international trade by buying and selling goods and services with other countries. They also participate in international finance by borrowing and lending money across borders.

Goods and services that a country buys from firms in other countries. For example, your iPad or Nike shoes might be imports.

Goods and services that firms in a country sell to households and firms in other countries. For example, Boeing sells most of its airplanes to foreign airlines.

Firms and governments seek the lowest available interest rates, which may be found outside their own country. Additionally, countries with import values greater than their export values need to borrow from the rest of the world.

Global booms and slumps are transmitted through international trade and finance flows, connecting nations. These flows cause economic shifts within countries.

Decisions made by firms in one country, like Boeing using suppliers on 4 continents, can affect the economy of other countries due to international trade and finance.