1 Economic Decisions and Systems 1-1 Satisfying Needs and Wants C H A P T E R 1 Economic Decisions and Systems 1-1 Satisfying Needs and Wants 1-2 Economic Choices 1-3 Economic Systems 1-4 Supply and Demand

1-1 Satisfying Needs and Wants Goals Explain the difference between needs and wants Distinguish between goods and services Describe the types of economic resources

Needs and Wants Needs – Things that are required in order to live Ex: Food, water, clean air, clothing, and shelter Wants – Things that add comfort and pleasure to your life. Ex: Name brand jeans, cell phone You are limited only by your imagination and by what businesses make available for sale

Checkpoint #1 What is the main difference between a need and a want? Needs are those things that are required to live, such as food, clothing, and shelter. Wants are things that add comfort and pleasure to our lives.

Goods and Services Goods – Things that you can see and touch Products you can purchase to meet your wants and needs Services – Activities provided for satisfaction of others that are consumed at the same time they are purchased. Businesses must provide services to you at the time you want to consume them

Goods and Services for Business Consumers Some goods and services are unique for business and consumer use Business needs (Steel, Plastic, Gasoline, and Computers) to operate. Electricity, security, accountants Businesses provide goods and services that meet business and consumer needs and wants.

The U.S. Economy The U.S. is the largest producer of goods and services, and largest consumers in the world, More then (2) China and (3) Japan combined The shift from an economy based on agriculture to an industrialized economy resulted in higher incomes and more choices of products and services for consumers. More money to spend and more ways to spend it.

The U.S. Economy (Cont) More spending = More jobs and a higher standard of living Challenges: Buy things may not need Preserving natural resources Controlling Pollution

Checkpoint #2 How do people satisfy wants and needs? People satisfy there wants and needs by purchasing and consuming goods and services.

Economic Resources Businesses produce good and services using economic resources Things available to be used to produce goods and services. Factors of Production 3 Types of Resources Natural Resources Human Resources Capital Resources

Natural Resources Raw materials supplied by nature Vegetable Soup Oil, Minerals, Nutrients Rivers, Lakes, Oceans Air you breathe Vegetable Soup What natural resources are used in its production? Vegetables and Spices Water Aluminum

Human Resources The people who produce goods and services Entrepreneur Vegetable Soup? Farmers (Livestock and Crop) Factory Workers / Managers Truck Drivers Entrepreneur The risk taker who uses resources to create a new product or service

Capital Resources The products and money used in the production of goods and services Ex: Buildings, equipment, supplies People invest money into businesses so the business will have the capital needed to operate. Make money from the profits earned by the business Selling their knowledge and skills in the form of labor

Checkpoint #3 What are the 3 types of economic resources? Give an example of each type of resource. Natural: water, land, trees, animals, and minerals Human: Labor (people who work on the farms and in factories, transport goods, provides services, or manage businesses. Capital: Money, Land, Buildings, Tools, and Equipment.

1-2 Economic Choices Goals: Describe the basic economic problem Explain the steps in the decision making process

The Basic Economic Problem The mismatch of unlimited wants and needs and the limited economic resources The basic economic problem results from Scarcity Not having enough resources to satisfy every need. Countries with few natural resources may not be able to produce enough products and services

Choices Everyone has to make financial decisions based on scarcity. Scarcity forces you to make choices Decisions among the alternatives Economic Decision-Making The process of choosing which needs and wants will be satisfied

Trade Offs and Opportunity Costs When you give up something to have something else, you are making a Trade Off Evaluate an alternative by considering the Opportunity Cost of the decision The value of the next best alternative that you were unable to choose. Benefit of choice should be greater than the benefit of next best choice.

Checkpoint #4 What is Opportunity Cost? The value of the next best alternative that you are unable to choose. It is what you are willing to give up in order to have your first choice.

The Decision-Making Process Effective Decision-Making Process involves 6 Steps: Define the Problem Identify the choices Evaluate the advantages and disadvantages of each choice Choose the best alternative Act on your choice Review your decision

Define the Problem Identify the Choices For every decision the problem must be clearly defined in order to make a decision that will lead to a satisfying solution. Identify the Choices It is common for you to face choices with many alternatives

Evaluate the Advantages and Disadvantages of Each Choice Write down your choices and then list the advantages and disadvantages of each Choose the Best Alternative Select the best choice that you believe will be the best for you at this particular time.

Act on Your Choice Review Your Decision Once you made you decision, do whatever you have chosen Review Your Decision On a Scale of 1 to 10 how would you rank you decision in the terms of the level of satisfaction it provided

Checkpoint #5 What are the 6 Steps in the Decision-Making Process and explain them? Define the Problem Identify the choices Evaluate the advantages and disadvantages of each alternative Choose the best alternative Act on your choice Review your decision

1-3 Economic Systems Goals: Identify the 3 economic questions Differentiate among the main types of economic systems Describe the economic system of the United States

The Three Economic Questions In order to determine how available resources will be used to meet the needs and wants, each country must answer 3 economic questions: 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?

What to Produce? The resources of a country are very important in determining what goods can be produced. Just as countries differ in the amount of resources, also differ to be important needs and wants

How to Produce? Countries must decide the best way to use their resources to produce what is needed. The U.S. economy labor needs Each country decides on how to use it resources to produce the goods and service it needs Unskilled or skilled labor Advanced or simple technology Own resources or those it obtains from other countries

What Needs and Wants to Satisfy? Decision makers must determine what needs and wants are the most critical when deciding what to produce Capital goods or Consumer goods In the U.S. many decisions are left for the individual consumer Depends on how much money you have and decide how you use it or save it

Checkpoint #6 What are the 3 economic questions? 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?

Types of Economic Systems A method a country uses to answer the 3 Economic Questions 3 Main Types of Economic Systems Command Economy Market Economy Traditional Economy Mixed Economy

Command Economy The resources are owed and controlled by the government Government officials decide what and how goods are produced and how they will be distributed and consumed How much of the resources will be used to produce goods and services Personal economic choices are limited in a command economy Communism

Market Economy The resources are owned and controlled by the people of the country The 3 economic questions are answered by individuals through buying and selling of goods and services in the Market Place. Anywhere that goods and services exchange hands Ex: Supermarket, Internet, Business Office, Flea Market

Traditional Economy Goods and Services are produced the way it always been done. Used in countries that are less developed and not yet participating in the global economy. Three economic questions are still established by their traditions. Meets the basic needs of the people.

Mixed Economies Combines elements of the command and market economies Most nations of the world operate a mixed economy As many countries with traditional economies develop, they often adopt mixed Economies Government makes many of the decisions on how resources are used.

Checkpoint #7 What are the main differences among the three economic systems? The main differences between the economic systems are found in the ways in which the 3 economic questions are answered.

The U.S. Economic System What is the Economic System of the United States? Market Another name for the U.S. Economic System is Capitalism. Refers to the private ownership of economic resources by individuals, rather than by the government.

The U.S. Economic System The economic freedom lends itself to other names often associated with the U.S. Economy. Free Enterprise or Private Enterprise The U.S. economic system is based on four important principles Private Property Freedom of Choice Profit Competition

Private Property Freedom of Choice You can own, use, or dispose of things of value. Freedom of Choice You can make economic decisions independently and most accept the consequences of those decisions.

Profit The money left from sales after all costs of operating a business have been paid. Competition The rivalry among businesses to sell their goods and services

Checkpoint #8 Name the four principles of which the U.S. Economic System is based? Property Freedom of Choice Profit Competition

1-4 Economic Systems Goals: Describe supply and demand orally and with graphs Discuss how supply and demand affect prices of product and services

Participating in a Market Economy Buying decisions are made by consumers – including individuals, businesses, and government A person who buys and uses goods and services Decide what to buy, where to buy, from whom to buy, and what price willing to pay Successful producers must pay close attention to the needs and experiences of consumers Individuals and organizations that determine what products and services will be available for sale.

Consumers Set Demand When consumers make decisions about what they will purchase, they determine the DEMAND for goods and services. The quantity of a good or service that consumers are willing and able to buy. A business depends on demand for their product or service in order to make a profit.

Producers Establish Supply Understanding consumer demand helps businesses to determine what types and quantities of products to SUPPLY The quantity of a good or service that businesses are willing and able to provide.

A Graphic View of Demand and Supply Demand Curve – Illustrates the relationship between the price of a product or service and the quantity demanded by consumers Supply Curve – Illustrates the relationship between the price of a product and the quantity businesses are willing to supply

A Graphic View of Demand and Supply

Checkpoint #9 How does the price of a product affect demand and supply? As prices decrease, the number of consumers willing and able to purchase the product and the quantity they are willing to buy (demand) will increase. As prices increase, businesses will be willing to supply larger quantities of the product.

Determining Price Prices are affected by the relationship between supply and demand, plus other factors. Factors Influencing Demand Factors Influencing Supply Competitors Market Price The point where supply and demand are equal.

Checkpoint #10 How is Market Price for a product determined? Supply, demand, and competition determine the market price for a product or service. The market price is the point at which supply and demand are equal.