Good Anything that can be grown or manufactured (made) Food Clothes Cars
Service Something a person does for someone else in exchange for money or value. Doctor Hairdresser waiter
Resources Natural Human Capital Combine to make goods and services
Households supply businesses with labor (workforce) and payments for goods and services Businesses provide households with income and goods and services. The government supplies businesses with public goods and services and payments for products purchased. Businesses provide the government with taxes and goods and services. The government provides households with income and public goods and services. Households provide the government with labor (workforce) and taxes
Production, Consumption and Distribution Four Questions all Economic Systems must Address
Four Questions All Economic Systems must address… What is produced? *Production* Goods and services must satisfy the consumers wants and desires
Four Questions All Economic Systems must address… HOW should these goods be produced? *Factors of Production* 1.Capital 2.Entrepreneurship 3.Land 4.Labor Combine the factors of production to make or produce the goods and services
Four Questions All Economic Systems must address… For WHOM are the goods and services produced? *Distribution* Getting the goods and services producer to consumer
Four Questions All Economic Systems must address… HOW MANY goods and services should be produced? *Consumption* Make enough to have a large profit and still have consumer demand. How many is determined by supply and demand.
Supply and Demand determine price through their interaction DEMAND: is the amount of a good or service that consumers are willing and able to buy at a certain price SUPPLY: is the amount of a good or service that producers are willing and able to sell at a certain price.
LAW OF SUPPLY : Businesses will provide more products when they can sell them at higher prices LAW OF DEMAND: Buyers will demand more products when they can buy them at lower prices
Supply and Demand… Scarcity is the inability to satisfy all wants at the same time due to limited resources Choices must be made as to what to produce, how much to produce and who will receive what is produced. PRICE: Mechanism to decide who gets goods and services. The amount that satisfies both producers for profit and consumers for value.
The inability to satisfy all wants at the same time; the NEEDS are greater than the RESOURCES
Since resources are LIMITED consumers and producers must make CHOICES CHOICE: selecting from a set of alternatives OPPORTUNITY COST: what is given up when the choice is made.
*Scarcity forces us to choose which needs and wants to satisfy with available resources. *Scarcity affects decisions concerning what and how much to produce, how goods and services will be produced and who will get what is produced
Economic Systems Three Types 1.Command 2.Mixed 3.Free Market
Command Economy The central government makes decisions and determines how resources will be used. The central government owns property and resources. Businesses are not run for profit. No competition Lack of consumer choice The government sets the prices of goods and services. China, North Korea, Cuba
Mixed Economy Most common type of economic system Government and individuals share the decision making process Individuals and businesses make decisions for the private sector Individuals own the means of production Government makes plans for the public sector Government guides and regulates production of goods and services offered. A greater government role than in a free market economy Most effective economy for providing goods and services U.S. and most Western European countries are mixed economies
Free Market Economy Also known as capitalism or free enterprise Private ownership of property and resources (owned by individuals) Individuals and businesses make profits Individuals and businesses compete Economic decisions are made by supply and demand Profit is a motivator for productivity No government involvement Consumer sovereignty: buyers determine what is produced
The U.S. economy is a MIXED ECONOMY PRIVATE PROPERTY FREE MARKETS PROFIT COMPETITION CONSUMER SOVEREIGNTY Markets are allowed to operate without undue interference from the government. Money, goods and services flow continuously among individual households, businesses and the government Consumers determine what goods and services are produced by what they buy Money left over after all business expenses have been paid. Rivalry between businesses for the same customers; results in better quality Individuals can own the means of production & property without undue government interference