Chapter 2:Factors of Production and Circular Flow

Vocabulary flashcards covering key concepts from Chapters 1 through 8 including factors of production, types of goods, circular flow models, and global market definitions.

Consumption Goods and Services

Goods and services that individuals and governments buy and use in the current period, representing $85\%$ of production.

Capital Goods

Goods bought by businesses and governments to increase productive resources and to use over future periods to produce other goods and services, representing $15\%$ of production.

Land

The gifts of nature and natural resources used to produce goods and services, which earns rent as income.

Labor

The work time and work effort that people devote to producing goods and services, which earns wages as income.

Capital

The tools, instruments, machines, buildings, and semi-finished goods (inventories) used by businesses and governments to produce goods and services, which earns interest.

Entrepreneurship

The human resource, business decision maker, and risk bearer who organizes land, labor, and capital to come up with new ideas and make business decisions; earns profit or loss.

Human Capital

The knowledge and skill that people obtain from education, on-the-job training, and work experience, which determines the quality of labor.

Financial Capital

Money, stocks, and bonds that are used to buy capital goods, but are not factors of production.

Circular Flow Model

An economic model that shows the flows of expenditures and incomes that result from decision makers' choices and the markets in which those choices interact.

Households

Individuals or people living together as decision-making units that decide the quantities of services of factors of production to supply and goods and services to buy.

Firms

The institutions that organize the production of goods and services, deciding the quantities of services of factors of production to hire and goods and services to supply.

Goods Markets

Markets in which goods and services are bought and sold, coordinating the supply decisions of firms and the buying decisions of households.

Factor Markets

Markets in which the services of factors of production are bought and sold, coordinating the supply decisions of households and hiring decisions of firms.

BRICS

A group of countries that produced one third of the world's goods and services in 2018, with China by far the largest economy in the group.