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The Main Idea Both people and countries must deal with the problem of scarcity. Nations do not have enough factors of production to produce everything that their population wants. Factors of production are all the economic resources necessary to produce a society’s goods and services.

Making Economic Decisions The principle of scarcity states that there are limited resources for satisfying unlimited wants and needs. scarcity a lack of resources

Graphic Organizer When dealing with scarcity, it is important to think of the best way to use the item that is in short supply. Demand Supply

There are four factors of production. all the economic resources necessary to produce a society’s goods and services

Graphic Organizer Natural Resources Labor Resources Capital Resources Entrepreneurial Resources

Natural resources can be processed in various ways to create goods. raw materials from nature that are used to produce goods

Graphic Organizer Wheat Cattle Coal Iron Oil Renewable resources can be reproduced Nonrenewable resources are limited Wheat Cattle Coal Iron Oil

Being Resourceful During the world oil crisis in 1973, Japan was able to reduce its dependence on oil and enhance productivity through conservation and alternate sources of industrial energy.

Labor resources can be skilled or unskilled, physical or intellectual. people who make the goods and services for which they are paid

Capital resources are also called capital goods. the things used to produce goods and services, such as buildings, materials, and equipment

Capital Resources Examples of capital resources include: Delivery trucks Supermarkets Cash registers Farm equipment

Entrepreneurial Resources Entrepreneurial resources meet society’s changing wants and needs. entrepreneurial resources resources used by the people who recognize opportunities and start businesses

Entrepreneurial Resources Entrepreneurship is necessary when starting a business. entrepreneurship the process of recognizing a business opportunity, testing it in the market, and gathering the resources necessary to start and run a business

Entrepreneurial Resources An entrepreneur accepts the risks and responsibilities of business ownership. entrepreneur an individual who undertakes the creation, organization, and ownership of a business

Entrepreneurial Resources Entrepreneurial resources are individuals who start and direct businesses to produce goods and services to satisfy needs or wants. Labor resources are people who produce the goods or services.

Why do all nations face the problem of scarcity? No nation has enough resources to satisfy all of its wants and needs.

Identify one similarity and one difference between labor and entrepreneurial resources. Entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

List five different natural resources. Answers will vary. Examples include water, oil, iron ore.

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The Main Idea Scarcity of economic resources forces every country to develop an economic system that determines how resources will be used. Each economic system has its advantages and disadvantages.

Basic Economic Questions There are three basic Economic questions. economics the study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices

Basic Economic Questions What should be produced? How should it be produced? Who should share in what is produced? Deciding to use a resource for one purpose means giving up the opportunity to use it for something else. This is called opportunity cost. The methods and labor used as well as the quality of items produced are important factors. In most societies, people can have as many goods and services as they can afford to buy.

Different Types of Economies Different economic systems answer the three basic economic questions in different ways. economic systems the methods societies use to distribute resources

Market Economies A market economy can also be called a private enterprise system, the free enterprise system, or capitalism. market economy an economic system in which economic decisions are made in the marketplace

Characteristics of a Market Economy Market Economies Characteristics of a Market Economy Resources are privately owned Citizens can own their own homes, land, and businesses Business owners decide how their businesses will be run Business owners decide what to produce and sell Business owners decide what to charge Government works to promote free trade and prevent unfair trade practices Consumers choose their occupations and where to live There is an uneven distribution of income

The lower the price, the more consumers will buy. Market Economies The higher the price for goods or services, the less consumers will buy. The lower the price, the more consumers will buy. price the amount of money given or asked for when goods and services are bought or sold

There is a relationship between price, supply, and demand. Market Economies There is a relationship between price, supply, and demand. supply the amount of goods and services that producers will provide at various prices demand the amount or quantity of goods and services that consumers are willing to buy at various prices

Market Economies Supply and demand interact with each other to form the equilibrium price. equilibrium price the point at which the quantity demanded and the quantity supplied meet

Supply, Demand, and Equilibrium Figure 2.1 Supply, Demand, and Equilibrium

Supply, Demand, and Equilibrium Figure 2.1 Supply, Demand, and Equilibrium

Supply, Demand, and Equilibrium Figure 2.1 Supply, Demand, and Equilibrium

Market Economies Competition among similar businesses is one of the basic characteristics of a free enterprise system. Profit motive is the desire to make a profit.

Command Economies In a command economy, the government owns and controls all the resources and businesses. command economy an economic system in which a central authority makes the key economic decisions

Characteristics of a Command Economy Command Economies Characteristics of a Command Economy The government dictates what will be produced, how it will be produced, and who will get the goods There is little choice of what to buy Goods are not considered necessities Prices are controlled by the state There is no competition and little incentive to produce a better product Highly skilled workers may earn the same as low-skilled workers

Command Economies A moderate command economy is also known as socialism. In a moderate command economy, there is some form of private enterprise, but the state owns major resources.

Mixed Economies Most nations have a mixed economy, which combines elements of capitalism and socialism. mixed economy an economy that contains both private and public enterprises.

How does a market system decide what will be produced? A market system decides what is to be produced through supply and demand in the marketplace.

In a market system, what determines how many goods and services an individual can buy? It is through one’s income—mostly generated by working.

Some nations can produce more goods with fewer workers than other countries that have more workers. How can that be true? More technology is used in the country with fewer workers, increasing worker productivity.

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