ECONOMIC ROLES AND DECISIONS Personal Finance Updated:

ECONOMIC ROLES AND DECISIONS  Distinguish between needs and wants  Explain the difference between goods and services  Identify 3 economic roles each person performs.  Understand the impact of worker productivity on our standard of living  Explain how consumers affect the supply and demand for goods and services.  List the three economic questions that must be answered by every society.  Identify five features of our market economy.  Describe the economic resources used in the production of goods and services. Objectives: 2

NEEDS & WANTS  Needs are basic to survival  Food, Clothing, Shelter  Wants add to the quality of life  Fancy car, New MP3 player  Unlimited Wants  Wants never end, something new will always be better than what you have wners_insurance_homes_owners.jpg stories/news_07_1/apple_iphone_1.jpg TERMINOLOGY GOODS & SERVICES  Goods  Things you can see and touch  Clothing, cars, food  Services  Wants that are satisfied through the efforts of other people  Haircuts, accounting services, movies 3

LIMITED RESOURCES (THE BASIC ECONOMIC PROBLEM)  Scarcity Affects Everyone  Scarcity Affects Businesses and Governments 01.jpg 4

KEY ECONOMIC QUESTIONS  What to Produce?  How to best use the resources available  How to Produce?  What combination of resources will best suit the current circumstances  For Whom to Produce?  How will the goods and services produced be distributed among the citizens 5

MARKET ECONOMY Questions are answered : The people through buying and selling activities in the Marketplace. Marketplace is anywhere buyers and sellers exchange goods, services, and some form of money. 6

OUR ECONOMIC SYSTEM  Capitalism—economic resources are usually privately owned by individuals rather than by the government Characteristics Include:  Free or Private Enterprise  Private Property  Voluntary exchange of Goods/Services  Freedom of the individual to choose what to produce  Competition  Profit Motive 7

ECONOMIC RESOURCES (FACTORS OF PRODUCTION)  Natural Resources  All of the materials that come from the earth  Oil, water, gold  Human Resources  Labor  Capital Resources  Tools, equipment, and buildings that are used to produce goods and services  Money needed to run a business 9/21/ __g__en,property=default.jpg 8

ECONOMIC ROLES YOU PERFORM  Consumer  Worker  Citizen 9

YOUR CONSUMER ROLE  Dollar Votes  Your buying decisions help businesses make their decisions  Supply -the Quantity of a product or service that a business is willing and able to provide at a particular price. The demand for products and services helps to determine supply  Demand The quantity of a product or service that consumers are willing and able to buy at a particular price 10

YOUR CONSUMER ROLE  Supply and Demand Affect Prices  If prices are too high consumers will not buy  If prices are too low businesses won’t supply (not enough profit)  Competition Keeps Prices Reasonable  Equilibrium price Selling $ = Cost + Profit 11

SHIFT IN DEMAND AND SUPPLY CURVE  Supply Curve  Production Costs Change  Price of Resources Change  Set Higher Profit Margin  Demand Curve  Tastes, Attitudes, Preferences of Consumers  Price of Complimentary Goods Change  Income Changes  Substitution Effect 12

SUPPLY AND DEMAND CURVES 13

SUPPLY CURVE SHIFT Supply curve moves do to increase in production cost 14

DEMAND CURVE SHIFT Demand curves shifts due to a loss of income 15

ELASTICITY OF DEMAND  Products requiring a larger portion of the consumer's income tend to have greater elasticity.  Luxury products tend to have greater elasticity than necessities.  Some products that initially have a low degree of necessity are habit forming and can become "necessities" to some consumers

ELASTIC V. INELASTIC DEMAND  Products that are necessities (needs) are more insensitive to price changes  inelastic good 17

ELASTIC V. INELASTIC DEMAND  None necessities (wants) are more sensitive to price changes  Products requiring a larger portion of the consumer's income tend to have greater elasticity  Elastic good 18

ECONOMIC CHOICES  Making Economic Decisions…  Choosing how to use limited resources to acquire unlimited wants 19

THE DECISION MAKING PROCESS 1. Identify Your Goal 2. Establish Your Criteria 3. Examine your options 4. Choose – Weigh Pros and Cons 5. Act on your choice 6. Review your decision - Evaluate 20

YOUR WORKER ROLE  You can’t pay for products and services unless you have a job  Standard of Living: Affected by the amount of money you make  Refers to the way you live as measured by the kinds and quality of goods and services you can afford 21

YOUR WORKER ROLE  Productivity as a Worker  Labor/Worker Productivity  The quantity of a good that an average worker can produce in an hour  Improved productivity = increased earnings = increased standard of living 22

YOUR CITIZEN ROLE  Pay taxes  For Public Goods  Needed for the community  Vote  Make a better place to live 23

ECONOMIC DECISIONS QUIZ 1. Name one example of a need & one example of a want. 2. Name one example of a good & one example of a service. 3. List the 3 types of resources. 4. What is the basic economic problem? 5. What are the 6 steps in the decision making process? 24

ECONOMIC ROLE -QUIZ 1. What are the 3 economic roles all people share? 2. How does demand affect prices? 3. How does supply affect prices? 4. What 2 Things do suppliers need to cover when they price a product? 5. What is standard of living? 6. ____ refers to the quantity of a good that an average worker can produce in an hour. Extra Credit 1. How does competition affect prices? 2. Define public goods. 3. Example of a public good. 25

REFERENCES Content: Chapters1 Economic Decisions and Chapter 3 Economic Roles Eggland, Steven, Ristau, Robert, Dlabay, Les, & Burrow, James. (1999). South-western intro to business. South-Western Pub. Images: Most were inserted from Microsoft © Clip Art. The rest are cited on specific slides. 26