Economic Resources and Systems Chapter 2

Introduction to Business, Economic Resources and SystemsSlide 2 of 77 Learning Objectives After completing this chapter, you’ll be able to: 1.Define 1.Define scarcity. 2.List 2.List the four factors of production. continued 3. Identify 3. Identify the differences between market and command economies. 4. Explain 4. Explain why most countries prefer a mixed economy.

Introduction to Business, Economic Resources and SystemsSlide 3 of 77 Why It’s Important Understanding economic resources and economic systems is essential to lessening economic problems.

Introduction to Business, Economic Resources and SystemsSlide 4 of 77 Key Words scarcity factors of production natural resources human resources capital resources entrepreneurial resources economics continued

Introduction to Business, Economic Resources and SystemsSlide 5 of 77 Key Words market economy demand supply equilibrium price command economy mixed economy

Introduction to Business, Economic Resources and SystemsSlide 6 of 77 Factors of Production scarcity A shortage of resources is called scarcity. A basic economic problem for any society is how to manage its resources.

Introduction to Business, Economic Resources and SystemsSlide 7 of 77 Factors of Production To meet the wants and needs To meet the wants and needs of its people, a society must produce goods and services. economic resources The means to produce them are called economic resources, or factors of production.

Introduction to Business, Economic Resources and SystemsSlide 8 of 77 Natural Resources 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. The economy of many countries is based on their natural resources.

Introduction to Business, Economic Resources and SystemsSlide 9 of 77 Natural Resources renewable. Some resources, like wheat and cattle, are renewable. They can be reproduced. nonrenewable resources are Limited resources or nonrenewable resources are coal, iron, and oil.

Introduction to Business, Economic Resources and SystemsSlide 10 of 77 Human Resources human resources The knowledge, efforts, and skills people bring to their work are called human resources, or labor. Shortage of skilled labor In the future.

Introduction to Business, Economic Resources and SystemsSlide 11 of 77 Capital Resources Capital resources Capital resources are the things used to produce goods and services, like buildings, materials, and equipment.

Introduction to Business, Economic Resources and SystemsSlide 12 of 77 Entrepreneurial Resources entrepreneurial resources Meeting the changing wants and needs of people requires entrepreneurial resources. Entrepreneurs improve on ways to use resources, or create and produce new ones.

Introduction to Business, Economic Resources and SystemsSlide 13 of 77 Fast Review 1.What is scarcity? 2.What are the four factors of production? 3.What are some examples of capital resources? continued

Introduction to Business, Economic Resources and SystemsSlide 14 of 77 Making Decisions About Production No society has enough productive resources No society has enough productive resources available to produce everything people want, so they must make choices.

Introduction to Business, Economic Resources and SystemsSlide 15 of 77 Basic Economic Questions A society makes economic choices by answering three economic questions: What should be produced? How should it be produced? How should it be produced? Who should share in what is Who should share in what is produced? produced?

Introduction to Business, Economic Resources and SystemsSlide 16 of 77 Types of Economic Systems Economics resources goods and services Economics studies how society chooses to use resources to produce and distribute goods and services for people.

Introduction to Business, Economic Resources and SystemsSlide 17 of 77 Types of Economic Systems  To use its limited resources  To use its limited resources effectively, every nation needs an economic system.  The primary goal of an economic system  The primary goal of an economic system is to provide people with a minimum standard of living.

Introduction to Business, Economic Resources and SystemsSlide 18 of 77 Types of Economic Systems The two basic and opposing economic systems that have been developed are: Market economy Market economy Command economy Command economy

Introduction to Business, Economic Resources and SystemsSlide 19 of 77 Market Economy market economy supply and demand. In a market economy economic decisions are made in the marketplace according to the laws of supply and demand.

Introduction to Business, Economic Resources and SystemsSlide 20 of 77 Price Price is the amount of money given or asked for when goods and services are bought or sold. Demand 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

Introduction to Business, Economic Resources and SystemsSlide 21 of 77 Supply Supply is the amount of goods and services that producers will provide at various prices. Market Economy The Market and Prices

Introduction to Business, Economic Resources and SystemsSlide 22 of 77 equilibrium price When the quantity demanded and the quantity supplied meet, the price is called the equilibrium price. Market Economy The Market and Prices

Introduction to Business, Economic Resources and SystemsSlide 23 of 77 capitalism A market economy is also called capitalism, free market or private enterprise.  Resources are privately owned.  Individuals decide what will be produced and how it is distributed.  Government supports the marketplace and makes some decisions in health and safety regulations, pollution and controlling inflation. Market Economy The Market and Prices

Introduction to Business, Economic Resources and SystemsSlide 24 of 77 CONS: Owners and producers reap the most rewards. Unskilled workers and older adults are unable to afford basic needs such as health care. A few companies can monopolize the industry. For Example: WalMart Market Economy The Market’s Motivations

Introduction to Business, Economic Resources and SystemsSlide 25 of 77 Command Economy command economy In a command economy (also called a planned or managed economy) a central authority makes the key economic decisions. There are 2 kinds: 1.Communism: The government makes all the decisions in the economy. 2.Socialism: The government owns and runs basic industries like banks and telecommunications. Everything else is privately owned and operated.

Introduction to Business, Economic Resources and SystemsSlide 26 of 77 Command Economy CONS: 1.Since the state provides all goods and services in a strong command economy, there is little choice of what to buy. 2.Since you can’t run your own business, there is no motivation for entrepreneurship.

Introduction to Business, Economic Resources and SystemsSlide 27 of 77 Mixed Economy 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.

Introduction to Business, Economic Resources and SystemsSlide 28 of 77 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.