Economics studies economic products which are goods and services that are useful, scarce, and transferable. Goods are items that satisfy wants, and can be consumer goods for individuals or capital goods used to produce other goods. Services are work performed for others. Consumers use goods and services. The circular flow shows resources going to businesses, which pay households who then buy goods and services, in a loop between markets. Productivity and specialization are key to economic growth by increasing output from the same inputs over time.

1. What is Economics?
Unit One, Lesson Two
Berryhill Economics

2. Basic Economic Concepts
 Economics is concerned with economic
products.
 Definition:
Economic products are goods and services
that are useful, relatively scarce, and
transferable to others.

3. Goods and Services
 A good is an item that is economically
useful or satisfies an economic want, such
as a book, car, or compact disc player.
 A consumer good is intended for final use
by individuals.
 When manufactured goods are used to
produce other goods and services, they
are called capital goods.

4. Consumer Goods vs. Capital Goods
 If I use a computer at home for email and
other personal use, it would be considered
a consumer good.
 If the same computer is purchased by an
accountant and she uses it to do people’s
taxes, it is now a capital good because it is
being used to produced another service
(taxes).

5. Consumer Goods vs. Capital Goods
 An oven in my home that I use to bake
casseroles for my family is a consumer
good.
 An oven in a bakery used to make cookies
and cakes that is sold to the public is a
capital good.

6. Service
 Another type of economic product is a
service, or work that is performed for
someone.
 This could include a haircut, home repairs,
putting on a concert, doing your taxes for
you, representing you in a court of law, or
even educating someone.

7. Consumer
 A consumer is a person who uses goods
and services to satisfy needs and wants.

8. The Simple Circular Flow
 There are a few terms we must define
before you can understand the circular
flow.
 Definitions:
--The market is a location or other
mechanism that allows buyers and sellers
to exchange a certain economic product.

9. The Circular Flow
 Definitions (cont.)
--Factor markets are markets where
factors of production (or resources or
capital goods and services) are bought
and sold.
--Product markets are where producers
sell their goods and services and
consumers buy those consumer goods and
services.

10. Circular Flow
 The circular flow will be shown to you
now.

11. Circular Flow
Resources
Land, Labor, Capital,
Entrepreneurship
Resource Market
Resource
Payments
Businesses Rent, Wages, Interest, Households
Profit
Household
Expenditures
Business Revenues
Product Market
Goods and Goods and
Services Services

12. Productivity and Economic Growth
 Economic growth occurs when a nation’s
total output of goods and services
increases over time.
 Productivity, or the measure of the
amount of output produced by a given
amount of inputs in a specific period of
time, is one of the most important factors
responsible for economic growth.

13. Productivity and Economic Growth
 Productivity goes up whenever more
output can be produced with the same
amount of inputs.
 Division of labor is an idea first developed
by Adam Smith in The Wealth of Nations
(one of the first economic books published
in 1776).

14. Productivity and Economic Growth
 Division of labor takes place when work is
arranged so that individual workers do
fewer tasks than before. Because the
worker is doing less, they should become
really good at what they do, and should,
in turn, be able to do more in the same
amount of time (thus increasing
productivity).

15. Productivity and Economic Growth
 Specialization takes place when factors of
production perform tasks that they can do
relatively more efficiently than others.
 Specialization and division of labor are
huge determinants in productivity.

16. Productivity and Economic Growth
 Another contribution to productivity comes
from investments in human capital, or the
sum of the skills, abilities, health, and
motivation of people.