7 Factors of Production A shortage of resources is called scarcity. A basic economic problem for any society is how to manage its resources.
8 Factors of ProductionTo meet the wants and needs of its people, a society must produce goods and services.The means to produce them are called economic resources, or factors of production.
9 YOUR ECONOMIC REALITY AT A GLANCE Figure2.1YOUR ECONOMIC REALITY AT A GLANCEThe average American spends $7 a day on food. People spend less than half of that money on home-cooked meals. Recreate the table below. Insert a check mark in the appropriate square based on your eating experience in one week.How do your choices influence your economic situation?
10 Natural ResourcesThe raw materials found in nature are called natural resources.Natural resources become factors of production when we use them to produce goods.
11 Natural ResourcesThe economy of many countries is based on their natural resources.
12 Natural ResourcesSome resources, like wheat and cattle, are renewable. They can be reproduced.Other resources are limited, or nonrenewable, like coal, iron, and oil.
13 Natural ResourcesThe amount of natural resources available to a society has a direct effect on its economy.
14 Human ResourcesThe knowledge, efforts, and skills people bring to their work are called human resources, or labor.
15 Human ResourcesLabor can be skilled or unskilled, physical or intellectual.One of the biggest problems facing many nations today is not a shortage of labor but a shortage of skilled labor.
16 Capital ResourcesCapital resources are the things used to produce goods and services, like buildings, materials, and equipment.
17 Capital ResourcesAs the wants and needs of people change, so do the needs for capital resources.
18 Entrepreneurial Resources Meeting the changing wants and needs of people requires entrepreneurial resources.
19 Entrepreneurial Resources Entrepreneurs improve on ways to use resources, or create and produce new ones.A key to dealing with scarcity is to develop new resources and technologies.
20 What are the four factors of production? Fast ReviewWhat is scarcity?What are the four factors of production?continued
21 What are some examples of capital resources? Fast ReviewWhat are some examples of capital resources?
22 Making Decisions About Production No society has enough productive resources available to produce everything people want.Every society must, therefore, make choices.
23 Basic Economic Questions Rules and regulations determine choices.
24 Basic Economic Questions A society makes economic choices by answering three economic questions:What should be produced?How should it be produced?Who should share in what isproduced?
25 What Should Be Produced? Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.
26 How Should It Be Produced? When a society decides what to produce, it must also address other types of questions, such as what methods will be used, how many people will work on the production, and what will be the quality of the items produced?
27 How Should It Be Produced? The answers to these questions depend on two factors.One factor depends on how goods are to be produced.Another important factor is the quantity of available resources.
28 Who Should Share in What Is Produced? This question focuses on the concept that people can’t get everything that they want because society doesn’t have enough resources.
29 Who Should Share in What Is Produced? In most societies, people can have as many goods and services as they can afford to buy.
30 Who Should Share in What Is Produced? The question arises as to how a society determines the income earned by each individual in that society?
31 Blood Is Thicker Than Oil Occidental Petroleum Corp. is exploring for oil in Columbia. However, the U’wa people oppose oil exploration on the land they have lived on for thousands of years. For them, oil is the “blood of Mother Earth.”continued
32 Blood Is Thicker Than Oil The problem is more complex because the Columbian government supports the oil production, which will bring development to the country.continued
33 AnalyzeWho has the right to the land—the U’wa people, or the Columbian government?
34 Fast ReviewWhen a society chooses to use a resource for one purpose and gives up the opportunity to use it for some other purpose, what cost is involved?continued
35 Fast ReviewWhat happens to production methods when a country discovers new ways to combine economic resources?continued
36 Fast ReviewIn most countries, what determines how many goods and services a person can buy?
37 Types of Economic Systems Economics studies how society chooses to use resources to produce and distribute goods and services for people’s consumption.
38 Types of Economic Systems To use its limited resources effectively, every nation needs an economic system.
39 Types of Economic Systems The primary goal of an economic system is to provide people with a minimum standard of living, or quality of life.
40 Types of Economic Systems The two basic and opposing economic systems that have been developed are:Market economyCommand economy
41 Market EconomyIn a market economy economic decisions are made in the marketplace according to the laws of supply and demand.
42 Market Economy The Market and Prices Price is the amount of money given or asked for when goods and services are bought or sold.
43 Market Economy The Market and Prices Demand is the amount or quantity of goods and services that consumers are willing to buy at various prices.
44 Market Economy The Market and Prices The higher the price, the fewer consumers will buy an item.The lower the price, the more consumers will buy an item.
45 Market Economy The Market and Prices Supply is the amount of goods and services that producers will provide at various prices.
46 Market Economy The Market and Prices Demand and supply work together. When the quantity demanded and the quantity supplied meet, the price is called the equilibrium price.
47 VISUALIZING DEMAND AND SUPPLY Figure2.2VISUALIZING DEMAND AND SUPPLYRemember these two points: (1) The demand curve always falls left to right on a graph, and (2) the supply curve always rises from left to right on the graph.How many CDs will be demanded at $16 a piece?How many CDs will be supplied at $18 a piece?
48 Market Economy The Market and Prices A market economy is also called capitalism, or private enterprise.In a capitalist system, resources are privately owned.
49 Market Economy The Market and Prices In a capitalist system, the primary role of government is to support the marketplace by removing obstacles such as trade barriers.
50 The Market’s Motivations Market EconomyThe Market’s MotivationsA market economy offers incentives, such as competition and the profit motive, to produce more.
51 The Market’s Motivations Market EconomyThe Market’s MotivationsThe constant demand for new goods and services encourages entrepreneurship.
52 The Market’s Motivations Market EconomyThe Market’s MotivationsThe problem with a market economy is that owners and producers reap the most rewards.
53 The Market’s Motivations Market EconomyThe Market’s MotivationsAnother problem with a market economy is that unskilled workers and older adults are often unable to afford basic needs such as health care.
54 The Market’s Motivations Market EconomyThe Market’s MotivationsAnother problem with a market economy is that a small number of large companies can join forces to control the supply of products and manipulate prices.
55 The Market’s Motivations Market EconomyThe Market’s MotivationsThe profit motive can become an end in itself rather than a means to improve the good for all.
56 Command EconomyIn a command economy a central authority makes the key economic decisions.A command economy is also called a planned or managed economy.
57 Command Economy There are two types of command economies. In a strong command economy, such as communism, the state makes all the economic decisions.
58 Command EconomyIn a moderate command economy, also called socialism, there is some form of private enterprise.
59 Command EconomyThe primary advantage of a command economy is that it guarantees everyone an equal standard of living.
60 Command Economy There are some disadvantages to a command economy. Since the state provides all goods and services in a strong command economy, there is little choice of what to buy.
61 Command EconomyAnother disadvantage to the command economy is that there is no incentive for entrepreneurship when you can’t run your own business.
62 Mixed EconomyMost nations have a mixed economy, a combination of a market and command economy.The state takes care of people’s needs while the marketplace takes care of people’s wants.
63 Graphic Organizer Graphic Organizer Basic Economic Questions MARKET ECONOMYEconomic decisions are made in the marketplaceaccording to the laws of supply and demand.MIXEDECONOMYWhat shouldbe produced?How should itbe produced?Who shouldshare inwhat isproduced?Combination market and command economy.COMMAND ECONOMYGovernment makes all key economic decisions.
64 What is an economic system? Fast ReviewWhat is an economic system?What is the difference between a market economy and a command economy?continued
65 Fast ReviewWhat are the advantages and disadvantages of a command economy and a market economy?
66 What are some examples of renewable and nonrenewable resources? continued
67 Some stoves use corn as a heating fuel Some stoves use corn as a heating fuel. Based upon the cost savings, do you think the price of corn is high or low?continued
68 Why do you think other countries are interested in buying corn-burning appliances? continued
69 In a command economy, how might a limit on the availability of corn affect the people?
70 Business Building Blocks Interpreting Line Graphs Graphs are a quick and useful way to visually communicate information.Line graphs often show change over a period of time.continued
71 Business Building Blocks Interpreting Line Graphs The left side of a graph is the vertical axis.The bottom of the graph is the horizontal axis.continued
72 Business Building Blocks Interpreting Line Graphs Both axes display numbers and a label indicating what the numbers represent.Dots on the graph show numerical information.continued
73 Business Building Blocks Interpreting Line Graphs When the dots on the graph are connected, they form a line whose location and direction reveals information about change through time.continued
74 Business Building Blocks How to Interpret a Line Graph Read the title of the graphRead the label on each axisUnderstand the numbers on each axis, including the interval usedcontinued
75 Business Building Blocks How to Interpret a Line Graph Examine where the dots are located on the graphDetermine what the line(s) or curve(s) symbolizecontinued
76 Business Building Blocks How to Interpret a Line Graph Compare the line(s) on the graph to both axes to determine the graph’s meaning