1. Basic Problems in Economics

3. Vocabulary:
Economics—the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants.
goods
capital
productivity
entrepreneurship
technology
wants
needs
scarcity
factors of production
land (economic term)
labor

4. Needs vs. Wants new car food shelter iPad jewelry clothing iPhone
X Box One
education
movie tickets
Health care
basic survival

5. Choices: People make choices how to spend their income.
What choices have you made recently with your money?
Businesses also make choices:
what to produce now
what to produce later
what to stop producing
These decisions affect workers’ incomes and people’s ability to buy.
Societies face choices about how to utilize their resources in the production of goods and services.
How people and societies make these choices is the focus of economics.

6. The Basic Problem of Economics
Scarcity

7. land labor technology Factors of Production capital entrepreneurship
Resources needed to produce goods and services
capital
entrepreneurship

8. Trade-Offs Opportunity Cost
The value of the next best alternative that had to be given up to do the action that was chosen.
When you make a trade-off (and you always make trade-offs), you lose.
In economics, opportunity cost is always an opportunity that is given up.

9. Three Basic Questions:
Economic Systems
Three Basic Questions:
What should be produced?
How should it be produced?
For whom should it be produced?

10. Types of Economic Systems
Traditional economy

11. Command Economy

13. Market Economy

14. Mixed Economy

16. Characteristics of the American Economy
little or no government control
freedom of enterprise
freedom of choice
private property
the profit incentive
competition

17. 1. Limited role of government:
capitalism: economic system in which private individuals own the factors of production and decide how to use them within legislated limits
capitalism=market system
How is the government involved in our economy?
Federal agencies regulate the quality of various foods and drugs.
Agencies watch over the nation’s money and banking system.
Agencies inspect workplaces for hazardous conditions.
Agencies guard against damage to the environment.
Uses tax money to provide social programs such as Social Security and Medicare.
State and local governments have roles in education, job training, recreation, and care for the elderly.

18. 2. Freedom of Enterprise:
free enterprise system: individuals are free to own and control the factors of production.
Government legal restrictions:
Zoning regulations
Child labor laws
Hazardous waste disposal
Other regulations limit free enterprise to protect you and your neighbors

19. 3. Freedom of Choice: The other side of free enterprise
Buyers, not sellers, make the decisions about what should be produced.

20. 4. Profit Incentive:
Profit: The money left after all the costs of production have been paid, including wages, rents, interest, and taxes.
The desire to make a profit=profit incentive.
The desire that motivates entrepreneurs.
Risk of failing also.

21. 5. Private Property:
Property held by individuals or groups rather than by the federal, state, or local governments.
Free to buy
Can control the use
The Constitution guarantees an owner’s right to private property and its use.
The government can’t seize or use private property unless it pays the owners.

22. 6. Competition:
The rivalry among producers of similar products to win more business by offering the lowest prices or better quality.
In a free enterprise system, the lure of profits encourages competition
Effective competition requires a large number of independent sellers
Competition leads to an efficient use of resources
Businesses have to keep prices low enough to attract buyers, yet high enough to make a profit.