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Circular Flow, Productivity, and Capitalism

Circular Flow, Productivity, and Capitalism. Market Situation with buyers and sellers exchanging economic product Local, regional, national, or global. Economic Decision Makers – consumers , businesses , governments , and foreign sectors Circular flow takes place among these groups

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Circular Flow, Productivity, and Capitalism

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  1. Circular Flow, Productivity, and Capitalism

  2. Market Situation with buyers and sellers exchanging economic product Local, regional, national, or global Economic Decision Makers – consumers, businesses, governments, and foreign sectors Circular flow takes place among these groups Resources, goods, and services Need to Know…

  3. Factor Market Consumers earn income Productive resources are bought and sold Workers sell labor for income Property owners loan land for rent People who own capital exchange it for interest Product Market Producers offer goods and services for sale People spend their income here Businesses Use money received to invest in the factors of production to make more products Buy capital goods to be used in factor market Factor vs. Product Markets

  4. Consumer Sector Factors of Production… earn wages, salaries and tips Capital exchanged for interest Business Sector Receives payments for goods and services Purchase capital goods Smaller than consumer sector Government Sector Produces goods and services Receives revenue Purchases consumer goods Foreign Sector Represents all countries in the world Purchases products from the United States Sell products to the US The Sectors – Groups making Economic Decisions

  5. Foreign Sector Factor Market Business Sector Consumer Sector Product Market Government Sector The Circular Flow

  6. When a nation’s total output increases over time… the economy grows circular flow becomes larger Productivity – measure of amount of output in a specific amount of time… reflects use of resources Improving Productivity Specialization – do it better than others By country (Global Interdependence) By business By people Division of Labor – break down a job into smaller parts Assembly Line Henry Ford Conveyor belt Productivity & Economic Growth

  7. Economic Growth

  8. USA’s Capitalism and Free Enterprise • Capitalism – private citizens own factors of production (profit) • Free Enterprise – competition with minimal government interference

  9. Market exchanges determine prices Consumer Sovereignty Consumer is the ruler of the market Businesses try to produce what people want Choice is a key element Jobs, purchases, production, etc. Responsibility comes along Private Property Rights Incentive to work and save Thrives on competition Buyers v. Sellers Sellers v. Sellers Survival of the Fittest! Efficient production Higher-quality products Satisfied customers Profit Motive is the driving force Voluntary Exchange – buyers and sellers in a market, both benefit, or else the transaction doesn’t happen Features of Capitalism

  10. Scottish economist and philosopher The Wealth of Nations Published in 1776 Scientifically described the basic principles of economics for the first time Individuals, seeking profit, end up benefiting society as a whole Laissez-Faire Economics French term “To Let Alone” Government should not interfere in the marketplace Government’s only role is to ensure free competition… very limited Adam Smith

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