Lecture Notes: Factors of Production, Circular Flow, and the Global Economy

Flashcards cover key concepts from the video notes: factors of production, circular flow, functional vs personal income distribution, and global economic structure (2.1–2.3), including practice problems and examples.

What are the four factors of production?

Land, Labor, Capital, and Entrepreneurship.

What incomes do the four factors earn?

Land—rent; Labor—wages; Capital—interest; Entrepreneurship—profit.

What is the Circular Flow Model?

A diagram showing the flow of expenditures and incomes between households, firms, and markets (money flows) and the corresponding flows of goods and services (real flows).

In the Circular Flow Model, who owns the factors of production and who hires them?

Households own the factors; firms hire them.

What are Money Flows and Real Flows in the Circular Flow Model?

Money Flows involve rents, wages, interest, and profit; Real Flows involve goods and services.

What are Consumption Goods and Capital Goods?

Consumption goods are items bought and used in the present period; Capital goods are goods bought to increase future productive capacity.

Give examples of a capital good and a consumption good.

Capital good: computer chips; Consumption good: a car.

What is Technology's role according to the notes?

Technology has displaced some jobs but created many more.

What is Functional Distribution of Income?

The distribution of income among the factors of production.

What is Personal Distribution of Income?

The distribution of income among households.

In 2017, which factor earned the largest share of income in the United States and what percentage?

Labor earned about 68%.

What are the IMF's two groups for the global economy?

Advanced Economies and Emerging Market and Developing Economies.

What does BRICS stand for?

Brazil, Russia, India, China, and South Africa.

What is human capital and how does it vary between advanced and emerging economies?

Human capital is the education/skills of a population; advanced economies have more human capital.

Global income distribution: bottom 50% vs top 10% share?

Bottom 50% earn less than 2% of global income; top 10% earn about 40%.

What are the key production differences between advanced and emerging economies?

Emerging economies have less capital; manufacturing is shrinking; services are growing.

Practice Problem 1 (developing economies): Describe what, how, and for whom goods and services are produced.

Agriculture dominates; produced by farmers with limited capital/tech; produced for the people by the people; industrials lag; services emerging.

Clinton Foundation success example: what was the source of the success?

Access to greater capital and technical support improved quality and human capital.

What are the main components of 2.3 Circular Flow Model (Households, Factor Markets, Firms, Goods Markets)?

Households supply factors; firms hire factors and produce; goods and services are traded in markets.

How many households and firms are referenced in the US notes?

Households: about 128 million; Firms: about 28 million.

What roles do the goods markets and factor markets play in the economy?

Goods markets buy/sell goods and services; factor markets buy/sell factors of production.

What expenditures does the Federal Government provide and how is it financed?

Expenditures on goods/services, Social Security, welfare; financed by taxes.

What are some major state and local government expenditures and taxes?

Expenditures on courts, police, schools, roads, water/sewage; taxes include property, sales, and state income taxes.

What is the Government Circular Flow Map?

Government collects taxes from households and firms and spends on goods/services; subsidies and retirement benefits are transfers.

What is International Trade versus International Finance in this context?

Imports and exports; borrowing outside the US to obtain the lowest interest rates.

What happens when imports exceed exports?

Countries borrow from the rest of the world.

Describe production in developing economies in terms of what, how, and for whom.

Agriculture dominates; produced by farmers with limited capital/tech; produced for the people by the people.

What trend is seen in manufacturing vs. services in many economies?

Manufacturing is shrinking; services are growing.

What is the global takeaway about education and human capital?

Higher education levels correlate with more human capital; advanced economies have higher levels.