Economic Resources and Systems Chapter 2 Day 1

What is Economics? Simply put, economics is the study of making choices

Why do we need Economics? We need economics because, we as individuals and as a society, experience scarcity (of raw materials) in relationship to our ever-growing needs and wants

Economics examines how we make choices A new car or college tuition? More schools or more highways? More free time or more income from work? Buy gas or eat for a month? It gives us a way of understanding how to make best use of natural resources, machinery, and people’s work efforts

A basic economic problem for any society is how to manage its resources

A resource is anything people can use, such as fuel, labor, or money, to make or obtain what they need or want

Unlimited wants vs. limited resources Scarcity A scarcity is a shortage of resources to satisfy the wants and needs of its people Unlimited wants vs. limited resources Name a resource that is scarce

Examples of Scarcity Oil Nurses Water Flu Vaccine Skilled Workers Time

Factors of Production Components necessary to produce a society’s goods and services Natural Resources Human Resources Capital Resources Entrepreneurial Resources

Natural Resources Raw materials found in nature Basic elements that can be combined in various ways to create goods Nylon – synthetic material derived from coal, water, and air Natural resources become factors of production when used to produce goods

Renewable Resource Can be reproduced Wheat Cattle Corn

Nonrenewable Resource Limited Coal Iron Crude Oil

Human Resources The knowledge, efforts, and skills people bring to their work Teachers Coal miners Bank managers Farmers

Capital Resources Things used to produce goods and services Buildings Materials Equipment

Entrepreneurial Resources Entrepreneurs recognize the need for new goods and services They improve on ways to use resources, or create and produce new ones

Types of Economic Systems Market economy Command economy Mixed economy Part 2 Notes Tomorrow

Market Economy Economic decisions are made in the marketplace according to the laws of supply and demand

Demand The amount or quantity of goods and services that consumers are willing to buy at various prices How many new release video games would you buy if each one costs…. $90? $45? $15?

Quantity of New Release Video Games Demanded Demand Curve for CDs Quantity of New Release Video Games Demanded

Supply The amount of goods and services that producers will provide at various prices If you were a business owner, how many new release video games would you produce if you could sell them for… $90? $45? $15?

Quantity of New Release Video Games Supplied Supply Curve for CDs Quantity of New Release Video Games Supplied

Equilibrium Price When the quantity demanded and the quantity supplied meet

Quantity of New Release Video Games Equilibrium Price Supply Equilibrium Price P1 Demand Q1 Quantity of New Release Video Games

The Law of Supply and Demand in Action “China Addicted to Oil, Too?” CBS News Reported 4/20/2006 “Food Chain Economics” CBS News Reported 7/20/2007

Capitalism Private enterprise system Resources are privately owned You can own your own home Your own land Your own business Government control is minimal Primary role of government is to support the marketplace by removing obstacles such as trade barriers

Incentives Competition Profit motive Businesses compete for customers by producing better and cheaper products Constant demand for new goods and services encourages entrepreneurship Profit motive The desire to make more money Incentive to work harder and longer if you can make more money

Problem Owners and producers reap the most rewards. Unskilled workers and older adults are often unable to afford basic needs such as health care

Command Economy Planned or managed economy A central authority, usually the government, makes the key economic decisions Communism State controls all the resources for the common good Socialism State owns major resources and makes key economic decisions However, individuals may own some businesses

Advantages Guarantees everyone an equal standard of living The state provides you with a job, a place to live, and health care Goods and services are distributed evenly

Disadvantages Little choice of what to buy Goods that aren’t considered necessities are not available Prices are fixed so there is no incentive to produce a better product Wages are fixed Doctors earn the same as an unskilled worker

Mixed Economy A combination of a market and command economy The state takes care of people’s needs while the market takes care of their wants The United States is said to have a mixed economy because privately owned businesses and government both play important roles.