1. Back to Table of Contents pp. 18-33 Chapter 2 Economic Resources and Systems

2. Introduction to Business, Economic Resources and SystemsSlide 2 of 74 Factors of Production A shortage of resources is called scarcity. A basic economic problem for any society is how to manage its resources.

3. Introduction to Business, Economic Resources and SystemsSlide 3 of 74 Factors of Production To 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.

4. Introduction to Business, Economic Resources and SystemsSlide 4 of 74 Natural Resources The raw materials found in nature are called natural resources. Natural resources become factors of production when we use them to produce goods.

5. Introduction to Business, Economic Resources and SystemsSlide 5 of 74 Natural Resources The economy of many countries is based on their natural resources.

6. Introduction to Business, Economic Resources and SystemsSlide 6 of 74 Natural Resources Some resources, like wheat and cattle, are renewable. They can be reproduced. Other resources are limited, or nonrenewable, like coal, iron, and oil.

7. Introduction to Business, Economic Resources and SystemsSlide 7 of 74 Natural Resources The amount of natural resources available to a society has a direct effect on its economy.

8. Introduction to Business, Economic Resources and SystemsSlide 8 of 74 Human Resources The knowledge, efforts, and skills people bring to their work are called human resources, or labor.

9. Introduction to Business, Economic Resources and SystemsSlide 9 of 74 Human Resources Labor 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.

10. Introduction to Business, Economic Resources and SystemsSlide 10 of 74 Capital Resources Capital resources are the things used to produce goods and services, like buildings, materials, and equipment.

11. Introduction to Business, Economic Resources and SystemsSlide 11 of 74 Capital Resources As the wants and needs of people change, so do the needs for capital resources.

12. Introduction to Business, Economic Resources and SystemsSlide 12 of 74 Entrepreneurial Resources Meeting the changing wants and needs of people requires entrepreneurial resources.

13. Introduction to Business, Economic Resources and SystemsSlide 13 of 74 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.

14. Introduction to Business, Economic Resources and SystemsSlide 14 of 74 Making Decisions About Production No society has enough productive resources available to produce everything people want. Every society must, therefore, make choices.

15. Introduction to Business, Economic Resources and SystemsSlide 15 of 74 Basic Economic Questions Rules and regulations determine choices.

16. Introduction to Business, Economic Resources and SystemsSlide 16 of 74 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 is produced?

17. Introduction to Business, Economic Resources and SystemsSlide 17 of 74 What Should Be Produced? Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.

18. Introduction to Business, Economic Resources and SystemsSlide 18 of 74 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?

19. Introduction to Business, Economic Resources and SystemsSlide 19 of 74 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.

20. Introduction to Business, Economic Resources and SystemsSlide 20 of 74 Who Should Share in What Is Produced? In most societies, people can have as many goods and services as they can afford to buy based on the income they receive.

21. Introduction to Business, Economic Resources and SystemsSlide 21 of 74 Types of Economic Systems Economics studies how society chooses to use resources to produce and distribute goods and services for people’s consumption.

22. Introduction to Business, Economic Resources and SystemsSlide 22 of 74 Types of Economic Systems To use its limited resources effectively, every nation needs an economic system.

23. Introduction to Business, Economic Resources and SystemsSlide 23 of 74 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.

24. Introduction to Business, Economic Resources and SystemsSlide 24 of 74 Types of Economic Systems The two basic and opposing economic systems that have been developed are: Market economy Command economy

25. Introduction to Business, Economic Resources and SystemsSlide 25 of 74 Market Economy In a market economy economic decisions are made in the marketplace according to the laws of supply and demand.

26. Introduction to Business, Economic Resources and SystemsSlide 26 of 74 Price is the amount of money given or asked for when goods and services are bought or sold. Market Economy The Market and Prices

27. Introduction to Business, Economic Resources and SystemsSlide 27 of 74 Demand is the amount or quantity of goods and services that consumers are willing to buy at various prices. Market Economy The Market and Prices

28. Introduction to Business, Economic Resources and SystemsSlide 28 of 74 The higher the price, the fewer consumers will buy an item. The lower the price, the more consumers will buy an item. Market Economy The Market and Prices

29. Introduction to Business, Economic Resources and SystemsSlide 29 of 74 Supply is the amount of goods and services that producers will provide at various prices. Market Economy The Market and Prices

30. Introduction to Business, Economic Resources and SystemsSlide 30 of 74 Demand and supply work together. When the quantity demanded and the quantity supplied meet, the price is called the equilibrium price. Market Economy The Market and Prices

31. Introduction to Business, Economic Resources and SystemsSlide 31 of 74 Figure 2.2 VISUALIZING DEMAND AND SUPPLY Remember 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?

32. Introduction to Business, Economic Resources and SystemsSlide 32 of 74 Capitalism, or private enterprise, is a market economy system. In a capitalist system, resources are privately owned. Market Economy The Market and Prices

33. Introduction to Business, Economic Resources and SystemsSlide 33 of 74 In a capitalist system, the primary role of government is to support the marketplace by removing obstacles such as trade barriers. Market Economy The Market and Prices

34. Introduction to Business, Economic Resources and SystemsSlide 34 of 74 A market economy offers incentives, such as competition and the profit motive, to produce more. Market Economy The Market’s Motivations

35. Introduction to Business, Economic Resources and SystemsSlide 35 of 74 The profit motive is the reward for taking a risk that encourages people to start businesses. Market Economy The Market’s Motivations

36. Introduction to Business, Economic Resources and SystemsSlide 36 of 74 A market economy provides the individual with the freedom to choose from many different competing products, and the freedom to start a business or choose a career. Market Economy The Market’s Motivations

37. Introduction to Business, Economic Resources and SystemsSlide 37 of 74 The problem with a market economy is that those who do not have the wanted job skills do not get an income. Market Economy The Market’s Motivations

38. Introduction to Business, Economic Resources and SystemsSlide 38 of 74 Another problem in a market economy is that sometimes one or two businesses control the market, thus leading to higher prices and lower quality products. Market Economy The Market’s Motivations

39. Introduction to Business, Economic Resources and SystemsSlide 39 of 74 Command Economy In a command economy a central authority makes the key economic decisions. A command economy is also called a planned or managed economy.

40. Introduction to Business, Economic Resources and SystemsSlide 40 of 74 Command Economy There are two types of command economies. In a strong command economy, such as communism, the state makes all the economic decisions.

41. Introduction to Business, Economic Resources and SystemsSlide 41 of 74 Command Economy In a moderate command economy, also called socialism, there is some form of private enterprise.

42. Introduction to Business, Economic Resources and SystemsSlide 42 of 74 Command Economy The primary advantage of a command economy is that it guarantees everyone an equal standard of living.

43. Introduction to Business, Economic Resources and SystemsSlide 43 of 74 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.

44. Introduction to Business, Economic Resources and SystemsSlide 44 of 74 Command Economy Another disadvantage to the command economy is that there is no incentive for entrepreneurship when you can’t run your own business.

45. Introduction to Business, Economic Resources and SystemsSlide 45 of 74 Mixed Economy Most 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.

46. Introduction to Business, Economic Resources and SystemsSlide 46 of 74 Graphic Organizer What should be produced? What should be produced? Basic Economic Questions Graphic Organizer MARKET ECONOMY Economic decisions are made in the marketplace according to the laws of supply and demand. How should it be produced? How should it be produced? Who should share in what is produced? Who should share in what is produced? COMMAND ECONOMY Government makes all key economic decisions. MIXED ECONOMY ECONOMY Combination market and command economy.