Chapter 1 Economic Decisions Business Essentials Ms. Baumgartner Economics – the study of how goods and services are produced, distributed, and used

Chapter 1 Goals 1. Distinguish between needs and wants 2. Explain the difference between goods and services 3. List and describe the economic resources used in the production of goods and services

Needs & Wants Opening Activity What if…….you were given $100 to buy anything you want…what would you buy?? (p5)

Needs & Wants Needs – things that are necessary for survival Ex) food, clothing, shelter We often desire things beyond our basic needs Wants – things not necessary for survival but which add comfort and pleasure to our lives Ex) Wii, designer jeans, iPod Our wants are ever-changing and therefore endless………………….

Goods & Services We satisfy most of our wants with goods and services Goods (products) – things you can see and touch Ex) mp3 player, clothes, TV, books, food

Goods & Services Not all of our wants can be met with things you can see and touch Services – things that satisfy our wants through the efforts of other people or equipment Ex) going to a movie, getting a haircut, using your cell phone Supplying goods and services is what business is all about

The U.S. Economy Largest producer of goods and services in the world America has twice as many malls as high schools!! NEGATIVES We produce more garbage per person per year than any other residents of any other country! We incur a LOT of debt—credit cards and loans POSITIVES Many Americans show responsibility by saving and investing their money instead of spending. Results in higer incomes since we spend so much Spending occurs daily and requires careful decisions to make sure needs/wants are satisfied in future as well as today

Economic Resources Economic resources (factors of production) - the means through which goods and services are produced There are 3 kinds of economic resources: Natural Human Capital

Economic Resources Natural resources – the raw materials supplied by nature All of the materials that come from the earth, water, or air are natural resources CONTENTS IN CAN OF SOUP?? Human resources (labor) – the people who work to produce goods and services LABOR TO MAKE CANS OF SOUP??

Economic Resources Capital resources (capital) – the tools, equipment, and buildings that are used to produce goods and services Ex) office buildings, factories, computers, delivery trucks Capital also includes $ that is needed to run a business (supplies, payroll)

Limited Resources We do not have an endless supply of all economic resources WHAT ARE SOME EXAMPLES??? SINCE RESOURCES CAN BE LIMITED, IF IN HIGH DEMAND OR LOW SUPPLY…THIS MEANS PRICES WILL BE HIGH

1-1 ASSESSMENT AS A CLASS 1-2 FOCUS ON REAL LIFE (PG12)

The Basic Economic Problem The mismatch of wants and needs and LIMITED economic resources is called THE BASIC ECONOMIC PROBLEM Results from (scarcity) – not having enough supply of resources to satisfy every need

Economic Choices Since you cannot have everything you want, you must choose which of the things you want most and can afford If you earn $75/week from part-time job—you will need to CHOOSE how to use Economic decision making – the process of choosing which wants, among several wants being considered, will be satisfied

Trade-Offs and Opportunity Costs When you give up something to have something else you are making a TRADE-OFF can’t buy a pair of shoes since you spent money on pizza and a movie with friends The opportunity cost is the value of the next-best alternative that you did not choose You had $30 to spend. Pizza/movie cost $15 and shoes cost $20. Your opportunity cost was $20 (cost of what you sacrificed)

Economic Choices The Decision – Making Process (p 10-11): Define the problem (limited study time: 2 hours, 3 tests) Identify the choices (best way to use your $75) Evaluated the advantages/disadvantages of each choice (weigh good and bad things—get advice!) Choose (what is best for you; remember consequences) Act on your choice (don’t second-guess—use instinct) Review your decision (should you change in future?)

1-2 Assessment 1-3 focus on real life

1-3: Economic Systems The 3 economic questions all places must answer What goods and services will be produced? How will the goods and services be produced? What needs and wants will be satisfied with the goods and services that are produced?

What to Produce? Some nations have rich soil and regular rains that result in large food supplies Others have desert climates or long winters that make farming difficult Nations use their own natural resources If a country spends too much in one area, there may not be enough resources to meet another

How to Produce? As countries develop, tasks that used to be done by people are now performed with faster, more efficient tools and equipment Less than 3% of the U.S. population produces the food the country consumes AG is now replaced by: healthcare professionals, financial managers, computer specialists, etc.

What Needs and Wants to Satisfy? Which are most critical and needed immediately Whatever wants and needs you decide to satisfy depend on how much money you have and how you choose to spend it/save it. The amount of money you have available to spend depends a great deal on your education!

TYPES OF ECONOMIC SYSTEMS A nation’s plan for answering the 3 economic questions 3 different types in the world—based on how much the government is involved in the marketplace Command economy Market economy Traditional economy Mixed economy

Command Economy Resources are owned and controlled by the government Government officials decide what and how goods can be produced, distributed and shared Government may decide to build a superior military or a world-class education system Some assign people to certain schools and careers!!!

Market Economy Resources are owned and controlled by people in the country Individuals buy and sell goods and services in the marketplace at their will No one directs consumers to make purchases or tells businesses what they can/can’t produce When consumers buy in the marketplace they “vote” with their dollars

Traditional Economy An old, simple economy where goods and services are produced the way it has always been done Used in countries less developed and not participating in the global economy Traditions are everything—every generation Focused on meeting basic needs of people (food, clothing, shelter)

Mixed Economies Most nations in the world Combines elements of command and market Government makes many decisions about how country’s resources will be used to help schools, hospitals, roads and utilities. As people become educated they are able to get jobs and earn money

U.S. ECONOMIC SYSTEM Economic system in the U.S is CAPITALISM Includes private ownership or resources by individuals, rather than government Owners are free to decide what to produce Consumers are free to decide what to buy Another name for this economy is FREE ENTERPRISE SYSTEM U.S. economy based on 4 principals

1. Private Property You can own, use or dispose of things of value As long as it does not break the law If you invent something, no one can steal

2. Freedom of Choice You can make decisions independently and must accept the consequences Business owners can decide where to open, what to sell and how to operate Consumers can decide where to shop, what to buy and how much to spend

3. Profit The money you make after sales and costs of business have been factors in Businesses are challenged to work hard and produce goods and services that are needed in order to make a profit At the heart of the private enterprise system

4. Competition Rivalry among businesses to sell similar goods and services If customers are not satisfied with one company’s offerings, they will look for another choice Forces businesses to improve their products, keep costs low, and give effective customer service COULD LEAD TO INFLATION

1-3 assessment 1-4 focus on real life

1.4: Supply and Demand IN A MARKET ECONOMY… CONSUMERS are people who buy and use goods and services—they decide PRODUCERS are people and organizations that determine what products and services will be available for sale

Consumers Set Demand DEMAND: quantity of goods that consumers are willing and able to buy (price vs quantity)

Producers Establish Supply SUPPLY: quantity of goods that businesses are willing and able to provide (price vs quantity)

DETERMINING PRICE FACTORS INFLUENCING DEMAND Time of year (vacations) When you cannot find a substitute Popularity, trends FACTORS INFLUENCING SUPPLY Climates, weather Competitors Natural disasters

Determining Market Price The point where supply and demand are equal EX: consumers are willing to purchase about 50 items and companies are willing to supply that same amount if they can charge about $6.00/each

1-4 assessment Heifer International Reading Activity Chapter 1 assessment

Any Questions??