Economic Decisions and Systems

Goals for this chapter  Distinguish between NEEDS vs. WANTS  Explain difference between GOODS and SERVICES  Describe ECONOMIC RESOURCES used in the production of goods/services

NEEDS  What do you need to survive? Food Clothing Housing Definition: things that are necessary for survival

WANTS  What are some things you want? Definition: things not necessary for survival but which add comfort and pleasure to your life

My how times have changed…

Your Opinion… How do you determine whether something is a want or need?

GOODS (aka products) Definition: things you can see and touch How many goods did you have on your list?

SERVICES Definition: Things that satisfy our wants through the efforts of other people or equipment. How many services did you have on your list?

Good or Service?

Last one…

What is business all about? Supplying goods and services to meet a society’s wants and needs

Question for you…  Do more people work in jobs that provide services or in jobs that produce products? Service

Economic Resources  Aka “Factors of Production” Definition: The means through which goods and services are produced What does a business need in order to produce a good or service?

3 Types of Economic Resources  Natural Resources—raw materials If it comes from the earth, water, or air  Human Resources—labor The people who work to produce goods and services  Capital Resources—everything else The tools, equipment, and buildings that are used to produce goods/services Includes money

Think/Pair/Share  Think of one good in this classroom or that you have purchased recently.  What are the natural resources used in the production of that good or service?

Another question for you…  Do we have an ENDLESS supply of natural resources? human resources? capital resources?

Basic Economic Problem (Scarcity) What is scarcity? Definition: A conflict between unlimited wants and limited resources

Economic Choices  How do we as a society with scarce resources decide which of the unlimited wants to supply? $100 to spend…look at your list of wants Which would you buy? Why?

6-Step Decision Making Process  Economic decision making is the process of choosing which wants will be satisfied *SEE PAGE 14  Opportunity Cost Value of the next best alternative Pair/Share: What steps do you take to make a decision? Can you and your partner identify the 6 steps using a recent purchase? What was an opportunity cost of your decision?

Decision Making Process Define Problem Identify Choices Evaluate Choices Choose One Act on Choice Review Decision

The Concept of Business and Profit  Business An organization that supplies goods and services in exchange for payment  Profit The money left from sales after subtracting all the costs of operating the business.  Revenues ($ made) minus expenses ($ spent)=Profit Reward for owning a business How do businesses help society?

Key Economic Questions  WHAT goods and services are to be produced?  HOW should the goods and services be produced?  FOR WHOM should the goods and services be produced?

Economic Systems Around the World  Economic System A nation’s procedures for allocating resources among its citizens The plan for answering the 3 economic questions  Factors of Production—remember these? The basic resources used by a country to produce goods and services

Types of Economic Systems  Traditional Economy Goods are produced based on the country’s custom—the way they have always been produced  Less developed countries  Simple methods of production  Change and growth occur slowly in these countries  Less responsive to the global economy

Types of Economic Systems  Command Economy- Communism  Government controls factors of production and make all decisions regarding production and allocation Government decides:  Individuals - where to work  Businesses - what to produce  Consumers – what to buy and how much they pay for it

Types of Economic Systems  Capitalism (Market Economy) Private ownership of the factors of production is present and entrepreneurship is encouraged through profits Found in countries with democratic forms of government  Customers get a choice of what goods they want and what price they want to pay  Businesses choose what they sell and how much they charge This freedom to choose what to produce is also called a free or private enterprise system

Vote  Is the United States economy based on A. Custom-Based Economy B. Planned Economy C. Market Economy

Types of Economic Systems  Mixed Market Economy A system that features characteristics of planned and market economies  Government owns and operates selected major industries (transportation, public works, military)  Most countries rely on a mixed market economy – SO DO WE!

Features of Our Economy  Capitalism —Economic resources are usually privately owned by individuals rather than by government 1. Right of Private Property 2. Freedom of Choice 3. Profit 4. Competition

Supply and Demand  What is demand versus supply?  Demand The willingness and ability of buyers to purchase a product  Supply The willingness and ability of producers to offer a good or service for sale

Demand  Demand Curve Shows the quantity demanded at different prices  Law of Demand P increases  Q D decreases P decreases  Q D increases D Q P

Supply  Supply Curve Shows the quantity supplied at different prices  Law of Supply P increases  Q S increases P decreases  Q S decreases S Q P

Putting Them Together  Supply and Demand Schedule The relationship between the levels of supply and demand at various prices Qs = Qd Market Price: price maximization