Understand economic systems. Objective 1.01 Understand economic systems.

Satisfying Needs and Wants

Satisfying Needs and Wants What are needs? Things that are required in order to live Examples: Food, water, clothing, clean air, shelter What are wants? Things that add pleasure or comfort to your life Movies, sports cars, luxury homes Needs are required in order to live. Wants are things that add comfort and pleasure to your life.

Satisfying Needs and Wants Needs and wants are satisfied by purchasing goods and services. What are goods? Products that you can see and touch. Examples: Pencils, cell phones, shoes What are services? Activities that are consumed at the same time the are produced. They are intangible, which means they have no physical characteristics. Examples: haircut, taxi ride, car wash The United States economy is the largest producer of goods and services in the world. Goods are things that you can see and touch. Services are activities that are consumed at the same time they are produced.

Satisfying Needs and Wants Economic resources, also called factors of production, are the means through which goods and services are produced The types of economic resources are: Natural Human Capital Entrepreneurial Economic resources, also called factors of production, are the means through which goods and services are produced.

Satisfying Needs and Wants Natural resources are raw materials supplied by nature from the air, the earth, and water. Examples: Water, trees, oil, minerals What is the difference between renewable and non renewable resources? Renewable can be replaced, like trees Nonrenewable can’t be replaced, like oil Human resources are the people producing goods and services. They contribute physical and mental energy to the production process. Examples: Factory workers, farmers, truck drivers, sales people

Satisfying Needs and Wants Capital resources are the tools, equipment, buildings, and money that are used to produce goods and services. Examples: Hammers, buildings, cash, bulldozers, ovens

Satisfying Needs and Wants Entrepreneurial resource is the initiative to take a risk and combine capital, human and natural resources to develop a new product or a new business Examples: Sam Walton (Wal-Mart), Bill Gates (Microsoft)

Satisfying Needs and Wants continued THE BASIC ECONOMIC PROBLEM: Limited resources and unlimited wants and needs What is the relationship between scarcity and the basic economic problem? Scarcity is not having enough resources to satisfy every need or want. Scarcity IS the economic problem. As individuals and nations, we must make CHOICES about how to use our resources and this requires DECISION-MAKING.

Satisfying Needs and Wants What is the economic decision-making process? It is choosing which wants and needs, among several options, will be satisfied. Remember, because of scarcity, all wants and needs cannot be met. What happens to choices in a tradeoff? A tradeoff is when you give up something to have something else. Example: You can’t purchase the new Iphone you had been saving for because you spent $150 on last minute concert tickets last weekend. What is opportunity cost ? It is the value of what you give up in a trade off; the value of the next best alternative you did not choose. The Iphone is the opportunity cost because it was not chosen. Economic decision-making is the process of choosing which wants, among several options, will be satisfied. Tradeoff is the process of giving up something for gaining something else. Opportunity cost is the value of the next-best alternative that you did not choose.

Six steps of economic decision-making

Economic Decision-Making What is economic decision-making? means of choosing a course of action among several alternatives. What are the 6 steps of economic decision-making? Defining the problem Identifying choices Evaluating the advantages and disadvantages of each choice Choosing one choice Acting on the choice Reviewing the decision Economic decision-making is a means of choosing a course of action among several alternatives.

Economic Systems All nations face the basic economic problem of scarcity of resources. An economic system is a nation’s plan for how their available resources will be used to meet the needs and wants of its citizens. The main types of economic systems are: Command Market Traditional Mixed

Economic Systems Each nation’s economic system answers 3 main questions: What goods and services will be produced? How will those goods and services be produced? For whom will goods and services be produced?

Economic Systems Command Economy An economics system in which the government owns resources and dictates what is produced Who answers the 3 economic questions? The government Examples: Cuba, North Korea

Economic Systems Market Economy An economics system where goods and services are owned and controlled by the people of the country. Who answers the 3 economic questions? Individuals through buying and selling of goods and services in the marketplace (anywhere that goods and services are exchanged) Examples: United States, Japan

Economic Systems Traditional Economy An economic system in which goods & services are produced the way they always have been (customs) & centered on meeting the basic needs of each family Who answers the 3 economic questions? Each family Examples: Third world countries in South America and Africa

Economic Systems Mixed Economy Combines the elements of the command and market economies. Varying degrees of government involvement in the marketplace China, Canada, France

The United States Economic System Businesses and individuals answer the 3 major economic questions, so it is considered a market economy. Other concepts of the U.S. economy Capitalism: Refers to the private ownership of resources by individuals rather than the government Free enterprise or private enterprise: Businesses can decide what to produce and consumers can decide what to purchase

Supply and Demand Consumers: Buy products. buy and use goods and services include individuals, businesses, and government. Consumers decide: what to buy, where to buy, and from whom to buy what price they are willing to pay. A consumer buys and uses goods and services. Consumers decide what to buy, where to buy, from whom to buy, and what price they are willing to pay.

Supply and Demand Producers: Make & sell products. individuals and organizations that determine what products and services will be available for sale invest resources and take risks to make a profit A consumer buys and uses goods and services. Consumers decide what to buy, where to buy, from whom to buy, and what price they are willing to pay.

Supply and Demand Graphs Intro to Business, 6e, Thomson South-Western

Supply and Demand Graphs Intro to Business, 6e, Thomson South-Western

Supply and Demand Graphs Market (equilibrium) price is the point where supply and demand are equal. Consumers are satisfied with the price they have to pay Businesses are satisfied with the profit they are making Intro to Business, 6e, Thomson South-Western