What Is An Economy? Chapter 13

What is an economy? Economy ---- the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services Economics ---- the study of how individuals and societies satisfy their unlimited wants with limited resources.

Wants vs. Needs Needs – food, clothing, shelter (necessary for survival) Wants – desires that can be satisfied by consuming a good or service

Goods vs. Services

Factors of Production The resources people have for producing goods and services to satisfy their wants & needs. Labor --- time, energy, knowledge, skills Land --- natural resources (soil, minerals, water, timber, fish & wildlife, energy sources) Capital --- anything produced in an economy that is used to produce other goods & services (tools, machines, buildings, etc.) Entrepreneurship --- combo of vision, skill, ingenuity, and willingness to take risks that are needed to create and run new businesses

Production to Consumption To produce the goods & services people want the factors of production (land, labor, & capital) must be combined in a process That is why resources are called factors of production. Example --- farmers produce food by combining soil, water, & sunlight (land) with seeds and machinery (capital). Also use their knowledge, skills, time, and energy, as well as that of their workers (labor).

Production to Consumption Distribution The process by which goods and services are made available to the people who want them. Ex. – truck that delivers milk to the grocery.

Production to Consumption Act of buying or using goods and services

Making Choices There are never enough resources to produce all the goods and services people want. People in all societies must make choices about which of their wants will be satisfied and which will not. These are economic choices. This process is what the economy is all about.

Benefits & Costs of Choices What benefit will you receive from each of your possible choices? The major cost of any decisions is giving up the benefits you would have received from the alternative. Opportunity cost – the highest valued benefit given up when a choice is made

Scarcity Resources are always limited compared with the number and variety of wants people have. Based on the relationship between wants and resources available to satisfy them.

3 Basic Economic Questions Which goods and services should be produced, and in what amounts? How should these goods and services be produced? Who will get the goods and services that are produced?

What influences how a society answers the basic economic questions? The society’s goals & values Ex. A society that wants to achieve equality might develop a system for sharing its products equally (even if it means some people work harder than others for the same reward) Ex. A society that wants to achieve freedom might let citizens compete freely to try to get the goods and services they want (even if it means some people get more than they need while others get less)

Types of Economies

Traditional Economy Basic economic decisions are made according to long- established patterns of behavior that are unlikely the change All members work together to support the society rather than just their families

Command Economies (Planned) The government or a central authority owns or controls the factors of production and makes the basic economic decisions. GOT MILK?

Market Economies Capitalism ---- Private individuals own the factors of production and are free to make their own choices about production, distribution, & consumption Free enterprise – another name for capitalism

Mixed Economy Includes elements of traditional, command, and market economies The most common economic system

Examples of Types of Economics Traditional – Aborigines, Amazonian tribes, The Amish Command – China, Cuba, former Soviet Union Market – U.S.A.*, Japan* * Not a pure Market Economy because the government does get involved Mixed – Iceland, Sweden, France, U.S.A., Japan https://www.youtube.com/watch?v=5xgwYRX19VU