Chapter 2 Economic Systems and Resources

Scarcity A shortage of resources is called scarcity. A basic economic problem for any society is how to manage its resources.

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. Example: Lawnmower, Weed-wacker, Labor used to mow the lawn.

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.

Natural Resources The economy of many countries is based on its natural resources. Name some examples:

Natural Resources Resources that can be reproduced are called renewable resources. Wheat Cattle Lumber

Natural Resources Resources that are limited are called nonrenewable resources. Oil Coal Iron

Oil

Oil Consumption The United States consumes approximately 21 million barrels of petroleum products per day!! The cost per barrel of crude oil has been fluctuating between $90 - $100 per barrel.

Oil Consumption Answer the following questions: 1.What is OPEC? 2.Who are the OPEC member countries? 3.When was OPEC formed? 4.What is ANWR?

Human Resources The knowledge, efforts, and skills people bring to their work are called human resources, or labor. Can be skilled, unskilled, physical, or intellectual. Teachers, farmers, bank managers

Human Resources Workers in the same types of jobs often belong to organizations such as labor unions. Unions negotiate with management for better pay, hours and working conditions.  Collective Bargaining

Capital Resources Capital resources are the things used to produce goods and services, like buildings, materials, and equipment.

Capital Resources Capital resources also include the distribution to get goods to the market. Roads, airports, etc…

Entrepreneurial Resources Meeting the changing wants and needs of people requires entrepreneurial resources. Entrepreneurs recognize the need for new goods and services. Name 3 entrepreneurs and why they are famous.

Project #1 1. Pick a good/service. 2. Draw the good/service in the center of the construction paper. 3. In each of the 4 corners draw: 1.natural resource 2.human resource 3.capital resource 4.entrepreneurial resource

Entrepreneuers 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. technologies

Visual Activity Figure 2.1 YOUR ECONOMIC REALITY AT A GLANCE The 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?

Making Production Decisions No society has enough productive resources available to produce everything people want (scarcity) Every society must, therefore, make choices.

Opportunity Cost With limited resources choices must be made. Whatever opportunity is not pursued with the resources is known as opportunity cost.

Economical Questions A society makes economic choices by answering three economic questions: 1.What should be produced? 2. How should it be produced? 3. Who should share in what is produced?

What?  Using a piece of land to grow crops, build a factory, or build housing.  The land can only be used for one of these things…therefore giving up the opportunity to use it for something else.  Dydee Diaper, Westmont Theater…

How?  What methods of production will be used?  How many people will work on the production?  What will be the quality of the items produced?

Who?  You can’t always get what you want due to a lack of resources.  So, who gets the limited number of goods that are produced?  Income levels!  How does society determine income levels?

Economics Economics- study of how society chooses to use resources to produce and distribute goods and services for people’s consumption.

Types of Economic Systems The two basic and opposing economic systems that have been developed are: Market economy Command economy

A market economy is also called capitalism, or private enterprise. In a capitalist system, resources are privately owned. A market economy offers incentives, such as competition and the profit motive, to produce more. Market Economy

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.

Supply Supply is the amount of goods and services that producers will provide at various prices.

Equilibrium Price When the quantity demanded and the quantity supplied meet, the price is called the equilibrium price. Price when supply=demand

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?

Market Economy Business:  Resources are privately owned You decide how your business will be run, what to sell, and how much to charge Consumer:  You decide where to live, where to shop, and what to buy…

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. China, Cuba, Latin America, African Countries Theoretical Advantage-Guaranteed equal standard of living Disadvantage- no incentive for entrepreneurship

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.

Graphic Organizer Economic decisions are made in the marketplace according to the laws of supply and demand. MIXED ECONOMY ECONOMY What should be produced? What should be produced? Basic Economic Questions Graphic Organizer MARKET ECONOMY 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. Combination market and command economy.

Types of Economies Three Types:  Command  Market  Mixed