Econ 104 1st Edition Lecture 5Outline of Last Lecture I. The Product MarketII. Law of demandIII. The Law of SupplyIV. Market EquilibriumOutline of Current Lecture II. The Labor Market – A factor MarketIII. The basic circular flow: a simple Macro Economy IV. Real World Circular FlowV. Measuring Total Production in the Real WorldCurrent LectureI. The Labor Market – A factor Marketa. Demand Curve: represents firmsi. Firms demand labor servicesii. Demand is inversely related to the wageb. Supply Curve: Represents householdsi. Households supply labor services ii. Supply is positively related to the wagec. Factors of production: i. Landii. Laboriii. Capital1. Physical2. Humaniv. EntrepreneurshipII. The basic circular flow: a simple Macro Economy a. Assumptionsi. Households own all the factors of productionii. Firms use their income to buy factors of production iii. Consumers spend all their income on goods and services b. The Flow i. Starting with Firms there is a circular flow1. Firms2. PaymentsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.3. Factor market4. Wages5. Households6. Demand of expenditures7. Product market8. Household expenditure budgets9. Back to Firms!ii. Now if you start with households and go in the opposite direction 1. Households2. Supplying factors3. Factor market4. Factors of production5. Firms6. Supply goods and services7. Product market8. Goods and services9. Back to Households!III. Real World Circular Flowa. However in the real world, the circular flow will include:1. Government2. Financial sector 3. Foreign Sector b. Leakages to the Spending Flowi. Saving (S)ii. Taxes (T)iii. Imports (M)c. Injections to the spending flowi. Investment (I)ii. Government (G) spendingiii. Exports (X)IV. Measuring Total Production in the Real Worlda. Gross Domestic Production: The market value of all finished goods and services produced in a country over a period of timei. Can be measured in 3 ways1. Production: The market value of final goods and services produced2. Expenditure: total expenditures on US goods and services3. Income: Income earned in producing goods and
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