How Economic Decisions are Made Entrepreneurship Unit 8, Lesson 1 Copyright © Texas Education Agency, All Rights Reserved 1

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What Economic Systems Determine What goods and services will be produced? How will the goods and services be produced? What needs and wants will be satisfied with the goods and services produced? Copyright © Texas Education Agency, All Rights Reserved 3

Command Economy Government determines What, How, and for Whom products and services are produced Little choice for consumers Copyright © Texas Education Agency, All Rights Reserved 4

Market Economy Personal choice Individuals and businesses decide what, how, and for whom goods and services are produced. Entrepreneurship thrives in a market economy. Decisions about production and consumption are made by millions of people, each acting alone. Individual choice creates the market. Individual choice determines how items are produced. Copyright © Texas Education Agency, All Rights Reserved 5

Traditional Economy Less developed countries not yet participating in the global economy Goods and services produced the way they have always been produced Most of what is produced is consumed and what is left over is sold or traded with people who live in nearby communities Lacks formal structure found in more advanced economic systems Limited capital resources Copyright © Texas Education Agency, All Rights Reserved 6

Mixed Economy Elements of the command and market economies are combined Often results when a command economy shifts toward a market economy Traditional economies have shifted to mixed economies Copyright © Texas Education Agency, All Rights Reserved 7

U.S. Economic System Capitalism – private ownership of resources by individuals rather than the government Private Property Freedom of Choice Profit Competition Copyright © Texas Education Agency, All Rights Reserved 8

Economic Choices Choosing which needs and wants will satisfy individuals using the resources they have available Scarcity –people’s needs and wants are unlimited and the resources to produce the goods and services to meet those needs and wants are limited Copyright © Texas Education Agency, All Rights Reserved 9

Opportunity Cost Value of the next-best alternative – the one you pass up Individuals have many alternatives when selecting goods and services. Copyright © Texas Education Agency, All Rights Reserved 10

Functions of Business Production Management Marketing –Product –Price –Distribution (place) –Promotion Management Finance Copyright © Texas Education Agency, All Rights Reserved 11

Assignments Opportunity Cost Poster Design a poster that demonstrates knowledge of opportunity cost and scarcity. One side of the poster will show a selected good or service and the other side of the poster will show examples of opportunity costs related to the purchase decision. Opportunity costs for one year of college expenses may include an automobile, vacation, and new clothes. Students will present their poster in class. The poster must show 10 examples of purchases and related opportunity costs. The poster will be evaluated using a rubric. Written Report Prepare a report that explains the U.S. economic system. The report should compare the U.S. economic system to other economic systems. The report should give examples of real entrepreneurs and successful businesses in the U.S. economic system. The report will be evaluated using a rubric. Competing to Win Divide the class into pairs. Then assign pairs the task of designing a product that will beat the competition. The teacher will give two pairs the same product; those two pairs will compete to find out with group comes up with the best idea. A class with 16 pairs would require eight product ideas since two pairs will be competing for each of the product ideas. Pairs will present their products to the class and the class will determine which competitor wins. Copyright © Texas Education Agency, All Rights Reserved 12