WHAT IS AN ECONOMY? Today’s presentation is on the economy. We are going to look at the different components that make up an economy.

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. The nation’s economy has to do with a lot of decision making. The choices they make 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 Resources are all things that are used when producing goods and services. There are four different types of resources classified as “factors of production”.

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 The first group is land. This is everything on the Earth in its natural state normally called the Earth’s natural resources. This means everything contained in the Earth or found in the sea. Coal and crude oil would make good example because it comes from the Earth. A lake and all the living things in the lake are also examples because they are found in water. Because this resource is found and not man-made it has no cost of production and supply cannot be increased.

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 Labor is all the people who work in the economy or human physical and mental effort used in creation of goods and services. For example both full and part-time workers in both public and private sectors. Economists call this human resources.

Resource 3 - Capital The money needed to start and operate a business The goods used in the production process Examples are: Factories Office Buildings Computers Raw materials that are processed into a more useful form (lumber, steel) Capital is the money needed to start and operate a business as a sign of financial strength assumed to be available for development or investment. It is the goods used in the production process. For example, factories, office buildings, and computers are all goods used to enhance production. Other examples include raw materials that are processed into a more useful form like lumber or steel.

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 Entrepreneurship is 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 a company to produce profit.

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 Infrastructure is the physical development of a country or in other words things necessary for production and distribution of goods and services. For example, roads, ports, sanitation facilities, and utilities are all basic needs for the operation of an enterprise.

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. Scarcity is the resources available to meet needs. Nations have unlimited wants and needs but limited resources to satisfy the wants and needs. Scarcity forces the nations to make economic choices in order to sustain enough resources to satisfy the public in the most efficient way possible.

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? There are three basic economic questions nations must answer when deciding how to use their limited resources. What goods and services should be produced based on the resources one has. How should the goods and services be produced most efficiently to produce maximum profit? And for whom should the goods and services be produced which depends on the targeted market.

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 What is produced all depends on the consumers through the purchases they make in the market place. In order to make a profit, consumers have to purchase the goods. 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 therefore 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 It is up to the business to decide how products will be produced. They have to be competitive in order to get through to the consumer. Businesses must produce quality products at lower prices than their competitors in order to sell it at a more attractive price to the consumer. They must find the best way to produce goods and services while encouraging customers to purchase those goods and services.

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 When looking at for whom should goods and services be produced, it is those individuals with the most money that are able to purchase more goods and services. And in order to obtain money individuals work and invest. The business must know its market in order to efficiently reach them.