Supply & Demand - Faculty.utep.edu

WealAnother concept is wealth. Wealth, in an economicsense, is the accumulation of those productsthat are tangible, scarce, useful, and transferable fromone person to another. Consequently, a nation'swealth is comprised of all items, including naturalresources, factories, stores, houses, motels, theaters,furniture, clothing, books, highways, video games,and even footballs.While goods are counted as wealth, services arenot because they are intangible. However, this doesnot mean that services are not useful. Indeed, whenAdam Smith wrote The Wealth ofNations in 1776, hewas referring specifically to the ability and skills ofa nation's people as the source of its wealth. Toillustrate, if a country's material possessions weretaken away, its people, through their skilled efforts,could restore these possessions. On the other hand,if a country's people were taken away, its wealthwould deteriorate.e Circular '0Activity0' EconoThe wealth that an economy generates ismade possible by the circular flow of economicactivity. The key feature of this circular flowis the market, a location or other mechanism thatallows buyers and sellers to exchange a certain economicproduct. Markets may be local, regional,national, or global. More recently, markets haveevolved in cyberspace, with buyers and sellers interactingthrough computer networks without leavingthe comfort of their homes.ador MarketsHow does this circular flow operate? As shownin Fjgure 1.3. individuals earn their incomes infactor markets, the markets where productiveresources are bought and sold. This is where entrepreneurshire labor for wages and salaries, acquireland in return for rent, and borrow money forinterest. The concept of a factor market is a simplifiedversion of the real world, of course, but itis nevertheless realistic. To illustrate, you participatein the factor market whenever you go to workand sell your labor to an employer.• IeNatural Resources Fertile land is a naturalresource and an item of wealth. Why are naturalresources considered part of the nation'swealth?arKetsAfter individuals receive their income from theresources they sell, they spend it in produd markets,markets where producers sell their goods and servicesto consumers. Thus, the money that individualsreceive from businesses in the factor marketsreturns to businesses in the product markets.Businesses then use this money to produce moregoods and services-and the cycle, through economicactivity, repeats itselfAs you can see from Figure 1.3, markets serve asthe main links between individuals and businesses.Note that money circulates on the outside, illustratingpayments for goods, services, and the factorsof production. The actual factors ofproduction, and the products made with these productiveinputs, flow in the opposite direction onthe inside.14 UNIT 1 FUNDAMENTAL ECONOMIC CONCEPTS