Economics is a Way of Thinking Economic Question Factors of Production Economic Market Different Economies

Basic Economic Questions: All economic decisions are constrained by scarcity (limited resources). We are forced to make certain decisions…

3 Basic Economics Questions: 1. WHAT goods and services will be produced? 2. HOW will those goods and services be produced? 3. FOR WHOM will they be produced?

Factors of Production Scarcity forces the economic questions (limited resources); resources are the basic elements used to produce goods/services.

4 Factors of Production Land - all raw material and natural resources (minerals, timber, land, etc) Labor - human resources (people) needed to create goods/services using physical/mental efforts Capital - buildings, machinery, equipment used to produce/distribute goods/services Entrepreneurship - efforts of individuals to develop new and better products, means of production, or methods for marketing goods/services; the willingness to take the risk of organizing other resources for production.

Economic Market Definition a market is the coming together of buyers and sellers for the exchange of goods and services. Aka: economic interactions Exchange of money is NOT necessary for a market to exist Markets do NOT even have to exist in a physical place with technology today.

Economies Command Market Traditional Each answers the economic question differently.

COMMAND ECONOMY Government answers economic question What goods/services are produced For whom they are produced How they are produced

MARKET ECONOMY Individuals and businesses answer the economic question. Individuals respond to pricing system Price high - incentive for sellers to supply good Price low - less incentive to produce

Market- aka: capitalist or free- market system Allowed to own private property Allowed to keep the profit/income they earn from using their private property Able to make most of the important decisions in the economy Government may play a role, but involvement is limited (schools, roads, parks)

TRADITIONAL ECONOMY Economic question is answered based on Ritual Habit Custom All social behavior is based on customs of the elders and ancestors; individuals know their place in society Found in remote areas Brazilian rain forest, Himalayan Mountains, Indonesian jungles