ECO2013 CH2

Dreamliner Diner

• Basic Information:

  • Code: 00000000001000

  • United Airlines: Model 787

  • Inquiry: Who manufactures the Dreamliner?

Chapter Overview

• Learning Objectives:

  1. Describe the production of goods and services in the U.S.

  2. Describe the production of goods and services on a global scale.

  3. Utilize the Circular Flow model for both U.S. and global economies.

• Focus: The U.S. and Global Economies

2.1 WHAT, HOW, AND FOR WHOM?

What Do We Produce?

• Categories:

  1. Consumption Goods and Services:

     • Definition: Goods/services bought for personal enjoyment.

     • Examples: Movies, laundromat services.

  2. Capital Goods:

     • Definition: Goods bought by businesses to enhance productive resources.

     • Examples: Cranes, Trucks.

How Do We Produce?

• Factors of Production: Resources necessary for goods/services production, categorized as:

  • Land

  • Labor

  • Capital

  • Entrepreneurship

Factors of Production Explained

1. Land

• Definition: All natural resources used in production, known as "gifts of nature".

• Includes: Minerals, water, air, wildlife, farmland, and forests.

2. Labor

• Definition: The time and effort people invest in producing goods/services.

• Human Capital: Knowledge and skills gained from education and experience.

3. Capital

• Definition: Tools and instruments used for production, derived from past production.

• Includes: Semi-finished goods, office buildings, machinery.

• Excludes: Financial assets like money, stocks, bonds.

4. Entrepreneurship

• Definition: The human resource that organizes other factors of production.

• Role: Innovates, makes business decisions, and assumes risks.

For Whom Do We Produce?

• Income Types:

  • Rent: For land use

  • Wages: For labor services

  • Interest: For capital use

  • Profit/Loss: For entrepreneurs.

Income Distribution

• Functional Distribution of Income: Allocates income among production factors.

• Personal Distribution of Income: Allocates income among households.

Income Statistics (2017)

• Functional Distribution:

  • Wages: 68%

  • Rent, Interest, Profit: 32%

• Personal Distribution:

  • Poorest 20%: 3.5%

  • Richest 20%: 50%

Global Economy Overview

U.S. Population and Global Comparison

• U.S. Population: 328,701,000

• World Population: 7,564,563,000

Types of Economies

1. Advanced Economies: 39 richest countries, 1 billion people (15% of global population).

2. Emerging Markets: 28 countries in Europe and Asia with nearly 500 million people.

3. Developing Economies: 127 countries with lower average incomes, over 5.5 billion people.

Global Production (2018)

• Total Value: Approximately $135 trillion

• Average Share: $18,000 per person if shared equally.

World GDP Trends (1980-2021)

• Historical rankings of GDP by country revealing trends of economic power (specific values mentioned).

Global Distribution of Income (2018)

• Average Income by Country:

  • U.S.: $171/day

  • European Union: $119/day

  • Russia: $80/day

  • China: $50/day

  • India: $21/day

  • Africa: $11/day.

Circular Flow Model

• Definition: Visual representation of expenditures and incomes resulting from decision-maker interactions in the marketplace.

Decision Makers in the Economy

1. Households: Individual decision-making units.

2. Firms: Institutions organizing production.

Market Types

1. Goods Markets: Where goods/services are exchanged.

2. Factor Markets: Where production factors are exchanged.

Real and Money Flows in Economy

• Description of flows illustrating the interactions between households and firms in both real and monetary terms.

Government's Role in the Economy

• Federal Government: Expenditures on goods, services, social security, and benefits.

• State and Local Government: Funded through sales, property, and state income taxes.

Global Interactions in the Economy

• International Trade: Buying and selling of goods between countries.

• International Finance: Borrowing and lending practices across global markets.

Case Study: Boeing and the Dreamliner

• Manufacturing: Collaborative effort across 400 firms on 4 continents.

• Efficiency: Decisions made to minimize costs and optimize production.'