What is an Economy? Chapter 13

People’s Wants and Needs Basic Survival Needs: Food Clothing Shelter What are our wants?

Using Resources Factors of Production- the resources people have for producing goods and services to satisfy their wants Labor- human resource that will turn raw materials into consumer good Land- natural resources needed Capital- monetary resources and physical assists companies or individuals use to produce good Entrepreneurship- want or desire to start business

Production of Consumption To produce the goods and services people want, the resources of labor, land, and capital must be combined in a process called production Consumption- is the act of buying or using goods or services

Steps of Want-Satisfaction Chain Human wants Require people to combine resources of land, labor, and capital Production Which results in goods and services Distribution Consumption Which results in want satisfaction

Making Choices There are never enough resources to produce all the goods and services people want People in all societies must make choices about which of their wants will be satisfied and which will not Opportunity cost- the highest valued benefit given up when a choice is made Scarcity- resources are always limited compared with the number and variety of wants people have

Three Most Basic Economic Decisions Which goods and services should be produced, and in what amounts? How should these goods and services be produced? Who will get the goods and services that are produced?

What and How Much? In any economy, people must decide what to produce with the scare resources they have Quantity- amount to produce

How to Produce Goods and Services New inventions and innovation in technology have had a major impact on the decisions that people make about how to produce goods and provide services Technology- the practical application of science to commerce or industry

Who Gets What? People must find a way to decide how all the goods and services will be divided up Wants are always greater than the resources available to satisfy them The goals and values of a society have a great influence on how that society makes all three basic economic decisions