Do Now What goods should we produce? How should we produce them? Who should consume them?

Three Key Economic Questions What goods and services should be produced? Each society must decide what to produce in order to satisfy the needs and wants of its people Which consumer goods should we produce? How much of our resources should we devote to national defense/education/consumer goods? Each decision that a society makes about what to produce comes at an opportunity cost

Three Key Economic Questions How should these goods and services be produced? Society must decide how to produce goods and services Production of goods & services requires land, labor, & capital – can be combined in different ways

Three Key Economic Questions Who consumes these goods and services? How can people meet their needs? Determined by how societies distribute income Factor payments: the income people receive in return for supplying factors of production Profit: the amount of money a business receives in excess of its expenses

Economic Efficiency Because resources are always scarce, societies try to maximize what they can produce using the resources they have If a society can accurately assess what its people need and want, it increases its economic efficiency

Economic Growth A nation’s economy must grow with its population so it can provide jobs for the workforce A nation’s economy must grow if people are going to have more income. When that occurs, the nation improves its… Standard of Living: level of economic prosperity

Economic Growth Innovation: the process of bringing new methods, products, or ideas into use

Traditional Economy Economic System that relies on habit, custom, or ritual to decide the three key economic questions Usually found in communities that are relatively small and close Economically successful if they meet their own needs Tend to be slow to adopt new ideas/technology Lack modern conveniences/low standard of living