Chapter 1 Economic Decisions And Systems

Satisfying Needs and Wants Needs - Essential – Things that are required in order to live Food Water Clean Air Clothing Shelter Economic Needs: – Good education, employment, safety Wants -Quality of Life – Things that add comfort and pleasure to your life Fashion clothing Latest music/ipods Luxury homes, cars, vacations

How do you satisfy your needs and wants? – You buy stuff!!! What do you buy? – Good and Services

Things that you can see and touch. Products = Goods Activities that are consumed at the same time they are produced. Intangible – no physical characteristics.

Businesses Also Have Needs With a partner, discuss the various local businesses in our community. Choose one and brainstorm needs and wants for that business. How does the business satisfy their needs and wants?

Economic Resources Economic Resources are the means through which goods and services are produced. – Also called Factors of Production Economic Resources have a limited supply. Those resources that are in high demand or are in very limited supply will force prices to increase. Three Kinds of Economic Resources – Natural Resources – Human Resources – Capital Resources

Natural Resources Raw materials supplied by nature – Oil, minerals and nutrients – Rivers, lakes and oceans – Air Limited supply of natural resources

Human Resources People producing goods and services  What Human Resources are needed to produce the can of chicken noodle soup? Entrepreneur: A 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 – Buildings, equipment, supplies, money, vehicles

The Basic Economic Problem Unlimited Wants and Needs and Limited Economic Resources Leads to Scarcity: Not having enough resources to satisfy every need. Scarcity forces consumers and businesses to make choices Economic Decision Making: process of choosing which wants will be satisfied Tradeoff: when you give up something to have something else. Opportunity Cost: Value of the next best alternative that you did not choose.

The Decision Making Process 1.Define the problem. 2.Identify the choices. 3.Evaluate the advantages and disadvantages of each choice. 4.Choose one. 5.Act on your choice. 6.Review your decision.

Economic Systems All economies must answer three questions: 1.What goods and services will be produced? – Determined by the type and amount of resources available – Also depends on the needs of the country 2.How will the goods and services be produced? – Human resources - technology 3.What needs and wants will be satisfied with the goods and services produced? – What needs and wants are most critical to satisfy

Types of Economic Systems An economic system is a nation’s plan for answering the three economic questions. Based on how much the government is involved in the marketplace.

Command Economy Resources are owned and controlled by the government. Government decides what and how goods are produced and how they will be distributed and shared. Soviet Union China – before 1978

Market Economy Resources are owned and controlled by the people of the country. The three economic questions are answered by individuals through buying and selling of goods and services in the marketplace. Consumers and businesses make decisions based on their own self-interest.

Traditional Economy Goods and services are produced the way it has always been done. Economy is centered around meeting the basic needs of the people. Mixed Economy Combines elements of the command and market economies.

The US Economic System Capitalism: Private ownership of resources by individuals, rather than by the government. Free Enterprise system: freedom of production and consumption. Based on 4 principles: – Private property – Freedom of choice – Profit – competition

Supply and Demand Consumers: a person who buys and uses goods and services  When consumers make decisions about what they will purchase, they determine demand for goods and services.  Demand: The quantity of a good or service that consumers are willing and able to buy.

Supply and Demand Producers: Individuals and organizations that determine what products and services will be available for sale.  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.

Supply and Demand Curve Market Price