1. Chapter 13: What is an economy?
Social Science

2. People’s Many Wants We all have wants and needs in society
Basic wants are food, clothing, and shelter, while other wants are to be educated, to be entertained, and to have good health care
Wants are determined by the environment, the societies in which we live in, and the person we are
Wants can change overtime, with styles coming and going to people growing older and wanting different things

3. Using Resources
Factors of production are the resources people have for producing goods and service to satisfy their wants
There are three basic factors in production:
Labor-the knowledge and skills used to work
Land-natural resources used to produce goods and services
Capital-anything produced in an economy that is used to produce other goods and services
can be tools, machines, buildings, food, etc.

4. Production to Consumption
Labor, land, and capital are combined to produce goods in a process called production
Production is followed by distribution, when the goods produced are made available to the public
Consumption occurs when the public buys and uses goods and services
All these combine in a process that is organize to satisfy a person’s particular wants

5. Making Choices
Because there aren’t enough goods to satisfy everyone’s wants, people must always make a choice as to which wants will be satisfied and which will not
The decision making process comes in two parts:
Benefits-which want will benefit you in the near or long-term future
Cost-what choosing a particular want will result in
Every economic decision has an opportunity cost, or the highest valued benefit given up when a choice is made

6. Scarcity
Society always faces scarcity, or when resources are always limited compared with the number and variety of wants people have
Based on the relationship between wants and the resources available to satisfy them
Each decision to use resources to produce one kind of good or service is also not to use the same resources to produce something else
Conservation of resources allows for production of more goods later on
These decisions are made usually by large businesses and governments

7. What and How?
One of the basic economic decisions made everyday are what to produce and the quantity, or amount, of that product to produce
Owners of products and resources make this decision
Another major decision is how to produce goods and services
Owners must decide how much of a resources goes into a product and how to use technology, or the practical application of science to commerce or industry, in the process to cut back on costs

8. Who Gets What
The last choice producers of goods must make is who gets the goods and services and how much of it do they get
Factors like types of people, location, and overall desires of the population come into play
To answer this question, a society can either split the goods evenly throughout the community or allow the citizens to compete for who gets what goods and services

9. Traditional Economics
The first type of economics is traditional economics, when basic economic decisions are made according to long-established patterns of behavior that are unlikely to change
The family, or tribe is the central part of traditional economics, and decide what to produce, how to produce it, and who gets what is produced
The people in the tribe usually have their own resources, so they can decide from day to day what they need to do

10. Command Economics
The second type of economics is command economics, where the government or a central authority owns or controls the factors of production and makes the basic economic decisions
A central planning group makes most of the economic decisions about how, what, and how much to produce
The group makes the choices as to the goods that are produced, and who gets these goods depends on the goals and values of the group

11. Market Economics
The third type of economics is market economics, in which private individuals own the factors of production and are free to make their own choices about production, distribution, and consumption
All economic decisions are made through a kind of bargaining process that takes place in markets, or a place or situation in which buyers and sellers agree to exchange goods and services
The value of what you have to offer sets the value of what you can get
People are free to decide how to use their resources as well as to start their own businesses and choose what jobs they want to do
Competition is favored in this economy, where people compete to gain the goods they want
People with more money usually acquire more goods

12. Market Economics
An incentive in a market economy that people use is to make a profit, or a difference between the total cost of production and the total revenues received from buyers
The desire to make a profit also leads people to invest, or to use money to help a business get started to grow, with the hope that the business will earn a profit in which you can share
There are two other names for a market economy:
Free enterprise: the system in which individuals in a market economy are free to undertake economic activities with little or no control by the government
Capitalism: the system in which people make their own decisions about how to save resources as capital and how to use their capital to produce goods and provide services

13. Modern-Day Economics
Today, most countries have a mixed economy, one that is a mixture of the three basic systems
The economy of China, even though it’s a Communist government, has a mixed economy of command and market economics
The economy of the United States, even though it’s a Democratic government, is a market economy with some elements of command economics
Certain businesses are controlled by the government