1. Chapter 1 Economic Decisions
Business Essentials
Ms. Baumgartner
Economics –
the study of how goods
and services are produced,
distributed, and used

2. Chapter 1 Goals 1. Distinguish between needs and wants
2. Explain the difference between goods and services
3. List and describe the economic resources used in the production of goods and services

3. Needs & Wants Opening Activity What if…….you were given $100 to buy
anything you want…what would you buy?? (p5)

4. Needs & Wants Needs – things that are necessary for survival
Ex) food, clothing, shelter
We often desire things beyond our basic needs
Wants – things not necessary for survival but which add comfort and pleasure to our lives
Ex) Wii, designer jeans, iPod
Our wants are ever-changing and therefore endless………………….

5. Goods & Services We satisfy most of our wants with goods and services
Goods (products) – things you can see and touch
Ex) mp3 player, clothes, TV, books, food

6. Goods & Services
Not all of our wants can be met with things you can see and touch
Services – things that satisfy our wants through the efforts of other people or equipment
Ex) going to a movie, getting a haircut, using your cell phone
Supplying goods and services is what business is all about

7. The U.S. Economy Largest producer of goods and services in the world
America has twice as many malls as high schools!!
NEGATIVES
We produce more garbage per person per year than any other residents of any other country!
We incur a LOT of debt—credit cards and loans
POSITIVES
Many Americans show responsibility by saving and investing their money instead of spending.
Results in higer incomes since we spend so much
Spending occurs daily and requires careful decisions to make sure needs/wants are satisfied in future as well as today

8. Economic Resources
Economic resources (factors of production) - the means through which goods and services are produced
There are 3 kinds of economic resources:
Natural
Human
Capital

9. Economic Resources
Natural resources – the raw materials supplied by nature
All of the materials that come from the earth, water, or air are natural resources
CONTENTS IN CAN OF SOUP??
Human resources (labor) – the people who work to produce goods and services
LABOR TO MAKE CANS OF SOUP??

10. Economic Resources
Capital resources (capital) – the tools, equipment, and buildings that are used to produce goods and services
Ex) office buildings, factories, computers, delivery trucks
Capital also includes $ that is needed to run a business (supplies, payroll)

11. Limited Resources
We do not have an endless supply of all economic resources
WHAT ARE SOME EXAMPLES???
SINCE RESOURCES CAN BE LIMITED, IF IN HIGH DEMAND OR LOW SUPPLY…THIS MEANS PRICES WILL BE HIGH

12. 1-1 ASSESSMENT AS A CLASS
1-2 FOCUS ON REAL LIFE (PG12)

13. The Basic Economic Problem
The mismatch of wants and needs and LIMITED economic resources is called THE BASIC ECONOMIC PROBLEM
Results from (scarcity) – not having enough supply of resources to satisfy every need

14. Economic Choices
Since you cannot have everything you want, you must choose which of the things you want most and can afford
If you earn $75/week from part-time job—you will need to CHOOSE how to use
Economic decision making – the process of choosing which wants, among several wants being considered, will be satisfied

15. Trade-Offs and Opportunity Costs
When you give up something to have something else you are making a TRADE-OFF
can’t buy a pair of shoes since you spent money on pizza and a movie with friends
The opportunity cost is the value of the next-best alternative that you did not choose
You had $30 to spend. Pizza/movie cost $15 and shoes cost $20. Your opportunity cost was $20 (cost of what you sacrificed)

16. Economic Choices The Decision – Making Process (p 10-11):
Define the problem (limited study time: 2 hours, 3 tests)
Identify the choices (best way to use your $75)
Evaluated the advantages/disadvantages of each choice (weigh good and bad things—get advice!)
Choose (what is best for you; remember consequences)
Act on your choice (don’t second-guess—use instinct)
Review your decision (should you change in future?)

17. 1-2 Assessment
1-3 focus on real life

18. 1-3: Economic Systems The 3 economic questions all places must answer
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 that are produced?

19. What to Produce?
Some nations have rich soil and regular rains that result in large food supplies
Others have desert climates or long winters that make farming difficult
Nations use their own natural resources
If a country spends too much in one area, there may not be enough resources to meet another

20. How to Produce?
As countries develop, tasks that used to be done by people are now performed with faster, more efficient tools and equipment
Less than 3% of the U.S. population produces the food the country consumes
AG is now replaced by: healthcare professionals, financial managers, computer specialists, etc.

21. What Needs and Wants to Satisfy?
Which are most critical and needed immediately
Whatever wants and needs you decide to satisfy depend on how much money you have and how you choose to spend it/save it.
The amount of money you have available to spend depends a great deal on your education!

22. TYPES OF ECONOMIC SYSTEMS
A nation’s plan for answering the 3 economic questions
3 different types in the world—based on how much the government is involved in the marketplace
Command economy
Market economy
Traditional economy
Mixed economy

23. Command Economy Resources are owned and controlled by the government
Government officials decide what and how goods can be produced, distributed and shared
Government may decide to build a superior military or a world-class education system
Some assign people to certain schools and careers!!!

24. Market Economy
Resources are owned and controlled by people in the country
Individuals buy and sell goods and services in the marketplace at their will
No one directs consumers to make purchases or tells businesses what they can/can’t produce
When consumers buy in the marketplace they “vote” with their dollars

25. Traditional Economy
An old, simple economy where goods and services are produced the way it has always been done
Used in countries less developed and not participating in the global economy
Traditions are everything—every generation
Focused on meeting basic needs of people (food, clothing, shelter)

26. Mixed Economies Most nations in the world
Combines elements of command and market
Government makes many decisions about how country’s resources will be used to help schools, hospitals, roads and utilities.
As people become educated they are able to get jobs and earn money

27. U.S. ECONOMIC SYSTEM Economic system in the U.S is CAPITALISM
Includes private ownership or resources by individuals, rather than government
Owners are free to decide what to produce
Consumers are free to decide what to buy
Another name for this economy is FREE ENTERPRISE SYSTEM
U.S. economy based on 4 principals

28. 1. Private Property You can own, use or dispose of things of value
As long as it does not break the law
If you invent something, no one can steal

29. 2. Freedom of Choice
You can make decisions independently and must accept the consequences
Business owners can decide where to open, what to sell and how to operate
Consumers can decide where to shop, what to buy and how much to spend

30. 3. Profit
The money you make after sales and costs of business have been factors in
Businesses are challenged to work hard and produce goods and services that are needed in order to make a profit
At the heart of the private enterprise system

31. 4. Competition
Rivalry among businesses to sell similar goods and services
If customers are not satisfied with one company’s offerings, they will look for another choice
Forces businesses to improve their products, keep costs low, and give effective customer service
COULD LEAD TO INFLATION

32. 1-3 assessment
1-4 focus on real life

33. 1.4: Supply and Demand IN A MARKET ECONOMY…
CONSUMERS are people who buy and use goods and services—they decide
PRODUCERS are people and organizations that determine what products and services will be available for sale

34. Consumers Set Demand
DEMAND: quantity of goods that consumers are willing and able to buy (price vs quantity)

35. Producers Establish Supply
SUPPLY: quantity of goods that businesses are willing and able to provide (price vs quantity)

36. DETERMINING PRICE FACTORS INFLUENCING DEMAND
Time of year (vacations)
When you cannot find a substitute
Popularity, trends
FACTORS INFLUENCING SUPPLY
Climates, weather
Competitors
Natural disasters

37. Determining Market Price
The point where supply and demand are equal
EX: consumers are willing to purchase about 50 items and companies are willing to supply that same amount if they can charge about $6.00/each

38. 1-4 assessment
Heifer International Reading Activity
Chapter 1 assessment

39. Any Questions??