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Chapter 2 - foundations of economics

by: Jessica Hutchinson

Chapter 2 - foundations of economics Econ 202

Marketplace > Towson University > Macro Economics > Econ 202 > Chapter 2 foundations of economics
Jessica Hutchinson
GPA 3.5

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Chapter 2 from the textbook and notes from the slides. Discusses the 4 types of resources or inputs
Dr. Rhoades
Class Notes
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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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