1. Chapter 13-1 Why Societies Have Economies

2. Section Preview Factors that determine people’s wants. Factors that determine people’s wants. Resources people use to satisfy their wants. Resources people use to satisfy their wants. Links in the want-satisfaction chain. Links in the want-satisfaction chain. Factors people consider when making economic decisions. Factors people consider when making economic decisions. How scarcity affects economic choices. How scarcity affects economic choices.

3. What is an Economy? All societies make choices about how to use… limited resources to produce goods and services that will satisfy people’s wants. This system is called an economy. Decision-makers in an economy decide… what goods and services to produce, how to produce them, and who will get what is produced.

4. Elements to an Economic Model Wants Wants Food Food Clothing Clothing Shelter Shelter Health care Health care Education Education Upper-class lifestyle Upper-class lifestyle Intellectual stimulation Intellectual stimulation Learning in the form of cultural immersion Learning in the form of cultural immersion Ego satisfying career Ego satisfying career

5. Wants are…. Short-Lived Short-Lived Satisfied by Goods and Services Satisfied by Goods and Services

6. Each Person’s Wants Differ Where you live Where you live Climate Climate Society we live in Society we live in Lifestyle Lifestyle Age Age Teens Teens Senior citizens Senior citizens

7. 3 Factors of Production Goods and Services require resources to make or provide them Goods and Services require resources to make or provide them Factors of production are the resources available for producing goods and services Factors of production are the resources available for producing goods and services 1. Labor 2. Land 3. Capital

8. 3 Factors of Production - Labor Time Time Energy Energy Skills Skills Education Education

9. 3 Factors of Production - Land Water Water Minerals Minerals Timber Timber Ore Ore Energy Energy

10. 3 Factors of Production - Capital Tools Tools Machines Machines Buildings Buildings Computers Computers Money Money (for future needs)

11. 3 Factors of Production - Capital Capital Capital Anything produced in an economy that is saved to be used to produce other goods and services Anything produced in an economy that is saved to be used to produce other goods and services Tools, machines, buildings, office computers Tools, machines, buildings, office computers Money (when saved, used for future production needs) Money (when saved, used for future production needs)

12. Production, Distribution, Consumption Production Production Process of combining the three factors of production Process of combining the three factors of production To produce desired goods and services To produce desired goods and services

13. Production, Distribution, Consumption Distribution Distribution Process of making goods and services available to people who want them Process of making goods and services available to people who want them

14. Production, Distribution, Consumption Consumption Consumption Act of buying or using goods and services Act of buying or using goods and services

15. Want Satisfaction Chain Page 290 Page 290

16. Scarcity of Resources There are never enough resources to satisfy all wants There are never enough resources to satisfy all wants

17. Scarcity of Resources Must make economic choices (Plan A or Plan B) on how to use what limited resources you have Must make economic choices (Plan A or Plan B) on how to use what limited resources you have Benefits? Benefits? What benefits will you receive if you go with Plan A instead of Plan B. What benefits will you receive if you go with Plan A instead of Plan B. Costs? Costs? What benefits do you give up if you go with Plan A instead of Plan B. What benefits do you give up if you go with Plan A instead of Plan B. Every economic decision comes with opportunity costs Every economic decision comes with opportunity costs The benefit given up when scarce resources are used for one purpose instead of another (the next best option) The benefit given up when scarce resources are used for one purpose instead of another (the next best option)

18. Scarcity of Resources Scarcity Scarcity Resources are limited, compared to the wants people have Resources are limited, compared to the wants people have Not compared to the total amount of resources available Not compared to the total amount of resources available

19. Economic Decisions A decision to use a particular resource is also a decision not to use that resource for something else. A decision to use a particular resource is also a decision not to use that resource for something else. A zero sum situation A zero sum situation

20. The Big Apple Experiment 1. Find a buyer or seller. 2. Negotiate a price you both agree on. ($5.00 increments only) 3. Report the price. 4. Turn in your card and get a new one. 5. Make another transaction with another person. 6. Make as many as you can until the round is over.

21. Chapter 13-2 Basic Economic Decisions

22. Chapter 13-2 Basic Economic Decisions

23. Section Preview How people decide what to produce and how much to produce. How people decide what to produce and how much to produce. How are decisions made about how to produce goods and services? How are decisions made about how to produce goods and services? What is the role of society in deciding who will get what is produced? What is the role of society in deciding who will get what is produced?

24. 3 Major Economic Decisions 1. What goods and services to produce and how much to produce? 2. How should they be made? 3. Who will receive the goods and services produced?

25. 1. What goods & services to make? Who decides? Who decides? Those who own or have access to factors of production Those who own or have access to factors of production On what basis? On what basis? A prediction of what people will want to consume A prediction of what people will want to consume

26. 1..and how many/much to produce? Amount of the production resources available Amount of the production resources available Land, labor, machinery Land, labor, machinery A prediction (guess) of how many/much can be sold A prediction (guess) of how many/much can be sold

27. 2. How should g & s be produced? How will the factors of production be used? How will the factors of production be used? Family operation or hire outside workers Family operation or hire outside workers Made by hand or by machines Made by hand or by machines Buy or rent equipment Buy or rent equipment Usually choose least costly method Usually choose least costly method Technology developed to do work more efficiently Technology developed to do work more efficiently Robotics, computers to minimize variation in product quality Robotics, computers to minimize variation in product quality

28. 3. Who receives the g & s produced? How will the products or services be divided? How will the products or services be divided? Equally among all people? Equally among all people? On the basis of what they say they want? On the basis of what they say they want? On the basis of how many resources the consumers have? On the basis of how many resources the consumers have?

29. 3 Economic Decisions Goals and Values play a key role in economic decisions Goals and Values play a key role in economic decisions Value 1: Society of complete equality Provide the same for all Provide the same for all Even though some work harder than others for the same reward Even though some work harder than others for the same reward Value 2: Freedom is all-important People compete freely for as much as they want People compete freely for as much as they want Even though some go without any Even though some go without any

30. To Build? Or Not to Build?

31. 1. What goods and services to produce? Who decides? On what basis? 1a. …and how much to produce? Who decides? On what basis? 2. How should they be built? 3. Who will receive the goods and services produced?

32. To Build or Not to Build? 1. What goods and services to produce? Who decides? Those who own/have access to factors of production. On what basis? Estimate of potential consumers. 1a. …and how much to produce? Who decides? (Same as above) On what basis? Estimate of production resources available. 2. How should they be built? By hand? By robots? (Cheapest, most reliable method.) 3. Who will receive the goods and services produced? Those with resources to buy them.

33. Chapter 13-3 Three Types of Economies

34. Section Preview Compare the characteristics of a traditional economy, command economy and market economy. Compare the characteristics of a traditional economy, command economy and market economy. Examine the way modern economies combine features of different economic systems. Examine the way modern economies combine features of different economic systems.

35. 3 Types of Economic Systems Governments have promoted different kinds of economic systems Governments have promoted different kinds of economic systems To provide needs of their citizens To provide needs of their citizens To benefit the nation as a whole To benefit the nation as a whole 1. Traditional Economy 2. Command Economy 3. Market Economy

36. Traditional Economy Economic decisions based on long-established ways of behaving that is unlikely to change Economic decisions based on long-established ways of behaving that is unlikely to change Culturally-based rules on hunting game, raising crops Culturally-based rules on hunting game, raising crops Passed down from elders to youth Passed down from elders to youth Cultural traditions answer the 3 economic questions Cultural traditions answer the 3 economic questions Little individual freedom Little individual freedom Examples: 3 rd world nations in Asia, Africa, Central and South America Examples: 3 rd world nations in Asia, Africa, Central and South America

37. Command Economy Government (central authority) owns/controls the factors of production and makes the basic economic decisions. Government (central authority) owns/controls the factors of production and makes the basic economic decisions. Centralized control Centralized control Transportation, banking system, communications, manufacturing Transportation, banking system, communications, manufacturing Governmental authority answers the 3 economic questions Governmental authority answers the 3 economic questions Little individual freedom Little individual freedom Examples: Egyptian pharaohs, medieval lords, communist leaders of Soviet Union, North Korea Examples: Egyptian pharaohs, medieval lords, communist leaders of Soviet Union, North Korea

38. Market Economy Private individuals own the factors of production Private individuals own the factors of production Free to decide how to answer the 3 economic decisions. Free to decide how to answer the 3 economic decisions. Bargaining process Bargaining process how economic decisions are made how economic decisions are made Voluntary exchange of goods and services Voluntary exchange of goods and services Value of what you have, sets the value of what you can get Value of what you have, sets the value of what you can get Competition plays a key economic role Competition plays a key economic role Producers compete to satisfy the wants of buyers Producers compete to satisfy the wants of buyers Buyers compete for the products they want Buyers compete for the products they want

39. Market Economy Profit motive plays a key role in economic decisions Profit motive plays a key role in economic decisions Profit – difference between what it costs to make and the price a buyer pays for it Profit – difference between what it costs to make and the price a buyer pays for it Causes people to invest - use your money to help a business start or to expand Causes people to invest - use your money to help a business start or to expand Expect to gain a share in future growth in profits Expect to gain a share in future growth in profits

40. Market Economy Free Enterprise Free Enterprise System in which individuals in a market economy are free to undertake economic activities with little or no control by the government. System in which individuals in a market economy are free to undertake economic activities with little or no control by the government. Capitalism Capitalism System in which people make their own decisions about how to save resources as capital and how to use their capital to produce goods and services System in which people make their own decisions about how to save resources as capital and how to use their capital to produce goods and services Capital is privately-owned Capital is privately-owned

41. Economic Systems Every economy is a mixed economy Every economy is a mixed economy A mixture of the three basic economic systems A mixture of the three basic economic systems China China Mixes free enterprise with command economy Mixes free enterprise with command economy U.S. U.S. Mixes command economy with free enterprise Mixes command economy with free enterprise Government requires certain services (education, transportation, etc.) Government requires certain services (education, transportation, etc.)

42. Economic Systems, etc.), etc.)