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RESOURCE: The labor, capital, land, and entrepreneurship used by society to produce consumer satisfying goods and services. Land provides the basic raw materials--vegetation, animals, minerals, fossil fuels--that are inputs into the production of goods (natural resources). Labor is the resource that does the "hands on" work of transforming raw materials into goods. Capital is the comprehensive term for the vast array of tools, equipment, buildings, and vehicles used in production. Entrepreneurship is the resource that undertakes the risk of bringing the other resources together and initiating the production process.

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Lesson 11: Circular Flow | Unit 2: Financial Markets Page: 10 of 22

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  • The main function of financial markets, which is to divert national income from household consumption to business investment.
  • The difference between the real or physical side of the economy (the production of goods that satisfy wants and needs) and the paper or financial side (legal claims on or ownership of physical resources, goods, and production).
  • How income is diverted from legal-claim buyer to legal-claim seller through the financial markets.
  • Why saving can be thought as a nonconsumption use of income, as making a loan, or as supplying income to the financial markets in exchange for a legal claim.
  • Two basic reasons to save: (1) in return for an interest payment or (2) to accumulate income that can be spent later.
  • Investment, which is business sector expenditures on gross domestic product for capital goods.
  • How the business sector borrows income through financial markets and uses this income flow to finance capital investment.
  • Why adding saving, investment, and financial markets does not change the total volume of the circular flow.
  • That imbalances between saving and investment trigger economic stability, business cycles, unemployment, and inflation.

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AVERAGE PHYSICAL PRODUCT

The quantity of total output produced per unit of a variable input, holding all other inputs fixed. Average physical product, usually abbreviated APP, is found by dividing total physical product by the quantity of the variable input. Average product, which more often goes by the shorter name average product (AP), is one of two measures derived from total physical product. The other is marginal physical product.

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APLS

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Today, you are likely to spend a great deal of time at a garage sale wanting to buy either a small palm tree that will fit on your coffee table or several magazines on fashion design. Be on the lookout for fairy dust that tastes like salt.
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On a typical day, the United States Mint produces over $1 million worth of dimes.
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