WHAT IS AN ECONOMY?

What is Economics The study of how people choose to use their resources. How nations will use its resources to produce and distribute goods and services.

The Basic Economic Problem The Concept of Economics Exercise

The Basic Economic Problem Peoples wants and needs are unlimited We rarely feel that our wants and needs are satisfied. Resources used to fulfill these needs are limited. There is never enough resources to fulfill all peoples wants and needs.

Scarcity The difference between wants and needs and the resources available to meet these needs is called Scarcity. Nations have unlimited wants and needs but limited resources – Scarcity forces the nations to make economic choices.

Even in The US With all of our resources we still have people living below the poverty line and businesses go bankrupt all the time.

So what do we do? Because of Scarcity. NATIONS MUST MAKE DECISIONS ON HOW TO USE ITS RESOURCES and WHAT PRODUCTS TO PRODUCE.

Economy or Economic System The way a nation makes choices. These choices involve how the nation will use its resources to produce and distribute goods and services.

Resources All things used in producing goods and services Factors of Production – the technical term economists use for resources

Resource 1 – Land Everything on the earth in its natural state / the earth’s natural resources Resources Include: Everything contained in the earth or found in the sea Coal and crude oil are examples A lake and all the living things in the lake are also examples

Resource 2 – Labor All the people who work in the economy Labor includes: Full and Part-time Workers Both the Public and the Private sector

Resource 3 - Capital The money needed to start and operate a business The goods used in the production process Infastructure Examples are: Factories Office Buildings Computers Raw materials that are processed into a more useful form (lumber, steel)

Infrastructure The physical development of a country Things necessary for production and distribution of goods and services Parts of the infrastructure include Roads Ports Sanitation Facilities Utilities

Resource 4 - Entrepreneurship The skills of the people willing to risk their time and money to run a business Entrepreneurs organize the other factors of production to create the goods and services desired in an economy

The Basic Economic Questions Nations must answer 3 basic economic questions when deciding to use their limited resources The way nations answer these questions define their economic system What goods and services should be produced? How should the goods and services be produced? For whom should the goods and services be produced?

What Should Be Produced? Consumers decide what is to be produced through purchases made in the market place. Items that satisfy the customer’s needs and wants are purchased making the products successful Items that do not satisfy the needs and wants of the consumer are not purchased and are not successful

How Should Goods and Services Be Produced? How products will be produced is left up to the business Businesses must be competitive Businesses must produce quality products at lower prices than their competitors Businesses must find the best way to produce goods and services Businesses must also find the best way to encourage customers to purchase their products

For Whom Should Goods and Services Be Produced? Those individuals with the most money are able to purchase more goods and services To obtain money individuals work and invest