1. Chapter 1: Economic Decisions & Systems
EQ: How do wants and needs affect economic decisions of consumers and businesses?

2. Lessons
1-1: Satisfying Needs and Wants 1-2: Economic Choices 1-3: Economic Systems 1-4: Supply and Demand

3. Needs vs. Wants Needs: things that are required in order to live
1-1: Satisfying Needs and Wants
Needs vs. Wants
Needs: things that are required in order to live
Food/Water
Shelter
Clothing
Education
Medical care
Safety
Wants: things that add comfort and pleasure to your life
iPod
DVDs
Ugg boots
Lexus SUV
Vacation home
Skateboard

4. Purchased to meet your needs and wants!
1-1: Satisfying Needs and Wants
Goods vs. Services
Goods: things that you can see or touch
Computers
Clothing
Sports equipment
Books
Services: activities that are consumed at the same time they are produced
Hair cut
Legal representation
Medical care
Car repair
Purchased to meet your needs and wants!

5. Unlimited Wants and Limited Resources
1-1: Satisfying Needs and Wants
Unlimited Wants and Limited Resources
We all want goods and services
We all do not have the resources to satisfy our wants
Economic Resource: the means through which goods and services are produced
money, labor, fuel, materials
individuals, businesses, and the government all face the same problem

6. 1-1: Satisfying Needs and Wants
Factors of Production
Natural Resources: raw materials supplied by nature
Oil, coal, timber, water, plants, animals
Human Resources: people who produce goods and services
Farmers, factory workers, truck drivers, sales managers
Entrepreneur: the risk taker who uses resources in an entirely new way to create a new product or service
Capital Resources: products and money used in production
Buildings, equipment, supplies, money
The goods and services a society produces
depends on its economic resources

7. Trade-Offs & Opportunity Costs
1-2: Economic Choices
Trade-Offs & Opportunity Costs
When you decide on one alternative, you give up on the other alternatives you might have chosen
(a trade-off)
You can’t buy new shoes because you decided to spend your money on an iPod
Opportunity cost: the value of the next-best
alternative you did not choose
Businesses and societies must carefully calculate opportunity costs before they make a decision

8. The Decision-Making Process
1-2: Economic Choices
The Decision-Making Process
Define the problem
Identify the alternatives
Evaluate advantages and disadvantages of each alternative
Choose one
Act on your choice
Review your decision

9. 1-3: Economic Systems
3 Economic Questions
No economy (nation) has enough resources to produce everything people want, so all economies have to answer 3 questions:
What goods and services will be produced?
How will the goods and services be produced?
What needs and wants will be satisfied with the goods and services produced?

10. 1. What goods and services will be produced?
1-3: Economic Systems
1. What goods and services will be produced?
Countries choose based on the type and amount of resources available
Rich natural resources
Large populations
Climates
Can also decide to trade with other countries to meet needs

11. 2. How will the goods and services be produced?
1-3: Economic Systems
2. How will the goods and services be produced?
Nations must decide what combination of resources will best suit their circumstances
As a country develops, tasks that were traditionally performed using human skills are now performed with faster, more efficient tools and equipment

12. 1-3: Economic Systems
3. What needs and wants will be satisfied with the goods and services provided?
Countries must decide which needs and wants are most critical to meet
Money determines who will get all of their needs and wants satisfied
Largely based on education and ability

13. 1-3: Economic Systems
Economic Systems
Economic system: a nation’s plan of answering the 3 economic questions
Types:
Command
Market
Traditional
Mixed
Based on how much the government is involved in the marketplace

14. Command Economy Resources are owned and controlled by the government
1-3: Economic Systems
Command Economy
Resources are owned and controlled by the government
People have little influence over how basic economic questions are answered and personal economic freedom is limited
Examples:
North Korea Iran
Cuba Saudi Arabia

15. Command Economy Advantages: Disadvantages:
1-3: Economic Systems
Command Economy
Advantages:
Everyone is guaranteed equal standard of living
Goods and services are distributed equally
Disadvantages:
May not have choice in education or career
Little choice of what to buy
Prices are fixed by government
No incentive to improve products or work hard

16. 1-3: Economic Systems
Market Economy
Resources are owned and controlled by the people of the country
Basic economic questions are answered by individuals through buying and selling of goods and services in the marketplace
Consumers “vote” with their dollars, and businesses are rewarded with profits if they make good economic decisions
Examples:
United States Canada England

17. Market Economy Advantages: Disadvantages: Individual freedom
1-3: Economic Systems
Market Economy
Advantages:
Individual freedom
Variety of goods and services to buy
Prices determined by supply and demand
Competition: incentive to improve and work hard (innovation)
Disadvantages:
Standard of living not guaranteed
Divided economic classes, growing gap
Economic instability

18. 1-3: Economic Systems
Traditional Economy
Goods and services are produced the way they have always been produced, based on custom / tradition
Used in countries that are less developed and are not yet participating in the global economy
Processes are passed down from generation to generation
Use natural resources and simple hand tools
Consume most of what they produce or trade the rest with people that live close
Centered on meeting basic needs
Examples:
Eskimos, Native Americans, Amish, some African countries

19. Traditional Economy Advantages: Disadvantages:
1-3: Economic Systems
Traditional Economy
Advantages:
Everyone has a function/purpose
Stability (little uncertainty)
Lack of overconsumption or surplus
Strong bond with community members
Disadvantages:
Lower standard of living
Little motivation for growth or improvement

20. Mixed Economy Combines elements of the command and market economies
1-3: Economic Systems
Mixed Economy
Combines elements of the command and market economies
Most nations
In the past 50 years, there has been a shift away from command economies and toward market economies, with various degrees of government involvement in the marketplace
Examples:
former Soviet Union, eastern Europe, China

21. The U.S. Economic System Market economy
1-3: Economic Systems
The U.S. Economic System
Market economy
Capitalism: private ownership of resources by individuals, rather than the government
Four principles of capitalism:
Private property
Freedom of choice
Profit
Competition

22. Participating in a Market Economy
1-4: Supply and Demand
Participating in a Market Economy
Consumer: a person who buys and uses goods and services
Individuals, businesses, and government
Set demand
Producer: individual or organization that determines what products and services will be available for sale
Establish supply

23. A Graphic View 1-4: Supply and Demand
Demand: the quantity of a good or service that consumers are willing and able to buy Supply: the quantity of a good or service that businesses are willing and able to provide Market Price: the point where supply and demand are equal

24. Determining Price Factors Influencing Demand
1-4: Supply and Demand
Determining Price
Factors Influencing Demand
Many substitutes, demand falls
Few substitutes, demand rises
Demand low, price tends to drop
Demand high, price tends to go up
Factors Influencing Supply
Lots of competitors, supply high
Few competitors, supply low
Supply large, prices low
Supply small, prices high