Chapter 1 Economic Decisions & Systems Business Essentials Mrs. Wilson

BEFORE ACTIVITY Think-Pair-Share Define and list an example of a need and a want.

1-1 Satisfying needs & wants In this lesson, students learns to distinguish between wants and needs and between goods and services. 1-1 Satisfying needs & wants

Needs & Wants Hardly a day goes by that you don’t see a product or service that you would like to have Web, mall, TV, radio, grocery store How do you decide what to buy or even if you need to buy at all? Determining what is a need and what is a want is an important part of making good decisions Needs – things that are required in order to live Ex) food, water, clean air, clothing, shelter Other needs in today’s economy are a good education, employment, safety, and transportation

Needs & Wants Wants – things that add comfort and pleasure to your life Ex) CD, iPad, tv, latest fashions Your needs and wants never end They change from day to day, they are not the same for each person You are limited only by your imagination and by what businesses make available for sale

Goods & Services You satisfy your needs and wants by purchasing and consuming goods and services Goods – things that you can see and touch Goods are the products you can purchase to meet your wants and needs Services – activities that are consumed at the same time they are produced Services are intangible, meaning they have not physical characteristics

Goods & Services Goods and services are purchased by businesses as well as by consumers What are some good and services businesses need/want? (p8) What are some goods and services consumers need/want? Businesses supply the goods and services that meet business and consumer needs and wants

Goods & Services The United States is the largest producer of goods and services in the world Americans consume more than any other country Some believe the high level of U.S. consumer demand stems from the sheer quantity of goods and services available and the amount of money businesses spend to advertise their offerings Spending opportunities occur daily and require careful decisions to make sure important needs and wants are satisfied in the future as well as today

Economic Resources How do you get the goods and services you need and want? Economic resources are needed! Economic resources – the means through which goods and service are produced, also called factors of production 3 kinds of economic resources: Natural resources – raw materials supplied by nature (p9) Human resources – the people who produce goods and services Capital resources – the produces and money used in the production of goods and services

Economic Resources All economic resources have a limited supply Individuals, businesses, and even countries compete for access to and ownership of economic resources Those resources that are in very high demand or that have a limited supply will command high prices Because there is a limited amount of natural resources, there will also be a limit to the amount of goods and services that can be produced

This lesson presents the basic economic problem facing consumers and businesses and the steps in making effective decisions. 1-2 Economic choices

The Basic Economic Problem Individuals and businesses have unlimited wants and needs The economic resources they have are limited The mismatch of unlimited wants and needs and limited economic resources is called the basic economic problem (p12) The basic economic problem results from scarcity – not having enough resources to satisfy every need

The Basic Economic Problem Everyone makes decisions based on scarcity (p13) Scarcity forces you to make choices or decisions among the alternatives Following a logical process can help you make better decisions Economic decision-making – the process of choosing which wants, among several options, will be satisfied Once you learn the process, your decision-making will be easier and the process may lead to better choices

The Basic Economic Problem Most of the choices you make result from considering a number of alternatives When you decide on one, you give up on the other alternatives you might have chosen Trade-off – what you make when you give something up to have something else The decision-making process helps you select the best and most satisfying alternative from among a set of choices Opportunity cost – the value of the next-best alternative that you did not choose (p13)

The Decision-Making Process There are 6 steps in the decision-making process Businesses and individuals use the process as they choose the best uses for their limited resources Define the problem Identify the choices Evaluate the advantages and disadvantages of each choice Choose one Act on your choice Review your decision

In this lesson, students learn how the main types of economic systems answer 3 economic questions.

The 3 Economic Questions All economies (or countries) of the world face the basic economic problem of scarcity of resources Each country must decide how the available resources will be used to meet the needs/wants of its citizens All economies must answer 3 economic questions: What goods/services will be produced? How will the goods/services be produced? What needs/wants will be satisfied with the goods/services produced? How the questions are answered indicates the type of economic system that exists in each country

Types of Economic Systems Economic system – a nation’s plan for answering the 3 economic questions The type of system is based on how much the government is involved in the marketplace Each is based on one of the 3 main types: Command economy – resources owned and controlled by the government Market economy – resources owned and controlled by the people of the country Traditional economy – goods/services are produced the way it has always been done

The U.S. Economic System Most nations of the world can be classified as a mixed economy – combines elements of the command and market economies Can you identify the economic system of the U.S.? Because individual businesses and consumers make most of the decisions about what will be produced and consumed, the U.S. system best fits the definition of the market economy Another name for the economic system in the U.S. is capitalism – the private ownership of resources by individuals, rather than by the government

The U.S. Economic System The U.S. economic system is based on 4 important principles: Private property Freedom of choice Profit Competition

This lesson discusses supply and demand and how they affect the prices of goods and services offered for sale. 1-4 supply & demand

Participating in a Market Economy In a market economy, buyers and sellers use the marketplace to make economic decisions Buying decisions are made by consumers – people who buy and use goods and services Producers pay close attention to the needs and activities of consumers Producers – individuals and organizations that determine what products and services will be available for sale Producers invest resources and take risks in order to make a profit

Participating in a Market Economy When consumers make decisions about what they will purchase, they determine the demand for goods and services Demand – the quantity of a good or service that consumers are willing and able to buy Understanding demand tells a business what type and what quantity of products and services to supply Supply – the quantity of a good or service that businesses are willing and able to provide

Participating in a Market Economy Supply, demand, and competition determine the market price for a product or service Market price – the point where supply and demand are equal

AFTER ACTIVITY Reflect Describe the 3 types of economic systems.