Ch. 1 Economic Decisions and Systems

Ch. 1-1 Satisfying Wants and Needs  Needs- Things that are required in order to live  Wants- Things that add comfort and pleasure to your life  Your wants and needs are unlimited.

 Goods- Things that you can see and touch. Products that you can purchase to meet your wants and needs.  Services- Activities that are consumed at the same time they are produced.  Services are intangible. They have no physical characteristics.

The U.S. Economy  The United States is the largest producer of goods and services in the world.  We have twice as many malls as we do high schools in the U.S.  Advantages- More jobs, a booming economy  Disadvantages- Americans incur a ton of debt as a result of loans and credit cards.

Economic Resources  Economic Resources- The means through which goods and services are produced.  Natural Resources- Raw materials supplied by nature  Human Resources- The people who produce goods and services  Capital Resources- The products and money used in the production of goods and services

Ch. 1-2 Economic Choices  The mismatch of unlimited wants and needs and limited economic resources is the basic economic problem.  Scarcity- Not having enough resources to satisfy every need.  Economic Decision-making- The process of choosing which wants, among several options, will be satisfied.

Trade-offs and Opportunity Costs  Trade-off: When you give up something to have something else.  Opportunity cost- The value of the next- best alternative that you did not choose.

Decision Making Process  1. Define the Problem  2. Identify the choices  3. Advantages and Disadvantages  4. Choose one  5. Act on your choice  6. Review your decision

Ch. 1-3 Economic Systems  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 produced?

 Command Economy- The resources are owned and controlled by the government.  Gov’t officials decide what and how goods are produced and how they will be distributed and shared.  Market Economy- The resources are owned and controlled by the people of the country.

 Capitalism- Refers to the private ownership of resources by individuals, rather than by the government.  Individual owners are free to decide what to produce.  Individual consumers are also free to decide what they want to buy.  The US economic System is based on 4 principles:  Private property  Freedom of choice  Profit  Competition

 Private property-You can own, use or dispose of things of value.  Freedom of choice- You can make decisions independently and must accept the consequences of those decisions.  Profit- Businesses are challenged to work hard, invest wisely, and produce goods and services that are needed.  Competition- The rivalry among businesses keeps prices at a reasonable level. It also drives businesses to constantly be making improvements to their products and services.

Supply and Demand  Consumer- A person who buys and uses goods and services.  Producers- Individuals and organizations that determine what products and services will be available for sale.  Demand- The quantity of a good or service that consumers are willing and able to buy.  Supply- The quantity of goods and services that businesses are willing and able to produce.

Determining Price  There are 3 main things that determine the price of a product or service:  Supply  Demand  Competition

Supply  What are some factors that affect supply?

Supply  Input prices - As the prices of input increase, production is less profitable, and less will be produced.  Technology - Improvements in technology will reduce the costs of production and make sales more profitable  Expectations - If companies expect prices to rise in the future, may try to produce less now and more later.

Demand  What are some factors that affect demand?

Demand  price of product  no substitute for the product  price of substitute  change in consumers’ income  change in price for complementing products  natural disasters  advertising  Seasonality  Expectations

Supply and Demand  If many consumers want a product, its price will go _____.  If there are a lot of substitutions for a product, its price will be ____.  If the availability of a product is low, the price will go ___.  As the supply goes up, the price will go ____.

 If competition for a product keeps the price low, businesses will not be eager to jump into that market.  If there isn’t very much competition for a product, and that keeps the price high, businesses will be eager to jump into that market.