The Major Components of Supply
Input is basically everything that is used to create the goods and services in the economy, also known as output. The major components of input are- Labor, which is the employees who work in the businesses.
- Capital, which is money used to invest in the businesses that make the output. Money includes cash, stocks, bonds, loans, grants, options. Capital also includes the equipment used to make the output.
- Natural Resources, which is the raw goods and materials used by the employees to make the output.
Output is everything that is produced. GDP is the common method of measurement of final output. The major components of output are:
- Products, which include autos, furniture and gasoline.
- Services, which include healthcare, finance, and housing.
- Business investment and government spending.
Most of What is Produced is for Personal Consumption
Over 70% of what the economy produces is for personal consumption. Over 40% is for services, with housing (10%) and health care (12%) being the largest components. Another 20% of the total economy output is nondurable goods, such as food (10%), clothing (2.7%) and fuel (2.4%). Durable goods for personal consumption, like autos (3.6%) and furniture (3%) make up 8% of the total economy.The remaining 30% of the economic output goes to business investment (16%) and government (19%), of which one-third is defense. The percentages given don’t total, because of calculations made to net out exports from imports. and from changes in inventory.
How Supply Affects the U.S. Economy
Here, in a snapshot, are the key rules an economy must follow:- Supply must equal demand.
- To make supply equal demand, prices change.
- When prices of output declines, businesses eventually decrease supply OR they lower the cost to the output to maintain profit margins OR they go out of business, thus decreasing the output.
- Everything else is just very complicated interpretations of these three basic rules.
