Chapter 2 - foundations of economics
Chapter 2 - foundations of economics Econ 202
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This 2 page Class Notes was uploaded by Jessica Hutchinson on Wednesday September 14, 2016. The Class Notes belongs to Econ 202 at Towson University taught by Dr. Rhoades in Fall 2016. Since its upload, it has received 3 views. For similar materials see Macroeconomics in Macro Economics at Towson University.
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Date Created: 09/14/16
Chapter 2: Foundations of Economics. Economies use 4 basic types of resources or inputs (factors of production) o Labor o Land o Capital o Entrepreneurship What and how a nation produces are determined by its factor endowment Land natural resources used to produce goods and services o Can be renewable (water) or nonrenewable (coal) o Land is paid in rent expecting a specific outcome and services/extractive resources to be flowing from the land Labor work time and work effort people devote to producing good and services. o Labor is paid wages o Labor force the number of adults that are willing and able to work o Human capital the knowledge, experience and skill of individual. Capital – tools, instruments, machines, buildings and other equiptment that can be used to produce other goods and services. o Consumpti0on goods cannot be used to produce other goods and services o Capital is paid interest o Capital has been produced for use in production. o Ex. Financial capital is the money that firms spend on buildings and equiptment Entrepreneurship organize land, labor and capital to produce goods and services. o Entrepreneurs are paid profits. o Closely related to the science of management Circular flow model: The flow of resources, goods and services, expenditures and incomes that result from decision making choices. The way those choices interact in markets to determine what, how and for whom goods and services are produced. Households are individuals or people living together as a decision making units Firms are institutions that organize production of goods and services. Market: any arrangement that brings buyers and sellers together and enables them to get information and do business with each other. o Goods market: markets in which goods and services are bought and sold. (households are buyers, firms and sellers) o Factor Market: markets in which factors of production are bought and sold (households sell =, firms buy) o o
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