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The American Economy
There are four factors of production necessary to produce goods and services—natural resources, labor, capital, and entrepreneurs. One way of measuring the economy's success and size is Gross Domestic Product (GDP). This is the total value, in dollars, of all final goods and services produced in a country during a single year. GDP helps economists determine whether the economy is growing or shrinking. It is also one measure of our standard of living.
One model economists use to study a market economy is the circular flow of economic activity. The circular flow illustrates the movement of goods and services from the business sector through the product market to consumers. The factors of production flow from consumers through the factor market to businesses. Because government produces goods and services, as well as purchases them, it is also part of the circular flow. Growth in the economy occurs when a nation's total output of goods and services increases over time. The economy of the United States is built largely on free markets and private property rights. Other important features of our economy are profit, competition, and voluntary exchange.
In the American free enterprise system, consumers enjoy many economic rights and protections. Throughout much of history consumer rights could be summed up in one phrase: caveat emptor, or "let the buyer beware." Beginning in the early 1900s, however, the United States government passed a number of laws that protect consumer rights. Just as consumers have rights, however, they also have responsibilities.