1. Economic Decisions & Systems Chapter 1

2. Satisfying Needs & Wants Needs- things that are required in order to live. Can also include: education, safety, transportation & medical care/ medicines

3. Wants- things that add comfort and pleasure to life.

4. Food for Thought The United States is the largest producer of goods and services in the world. The U.S. has 2x as many shopping malls as it does schools! The U.S. is the largest consumer of goods and services in the world. Began at the beginning of the 20 th century Skyrocketed by the 1950’s

5. Goods vs. Services Goods- something that can be held or touched. Services- intangible products.

6. How do we get goods & services? Economic Resources- the means through which goods and services are produced. Also known as Factors of Production. Three Categories: Natural Resources Human Resources Capital Resources

7. Natural Resources Land Natural resources Earth & Sea Fish in the lake, the lake itself Trees, plants & soil

8. Human Resources Labor: All the people who work in the economy. Full-time & Part-time Managers, professionals, and public employees

9. Entrepreneurship The skills of people who are willing to risk their time and money to run a business.

10. Capital Resources The products & money used in the production of goods and services.

11. Production Model Natural Resources + Human Resources + Capital Resources = Goods & Services (output)

12. Economic Problems You can’t have everything you want! Scarcity- not having enough resources to satisfy every need. *affects everyone *forces choices to be made *almost EVERYTHING is scarce

13. The Choices we make…. All economic decisions are based on scarcity. Scarcity forces you to make choices! Individuals, families, governments Economic Decision Making- the process of choosing which wants, among several options, will be satisfied.

14. Tradeoffs vs. Opportunity Costs Tradeoff- giving up something to choose something else. Opportunity Costs- the value of the next- best alternative that was not chosen.

15. The Decision Making Process 1. Define the Problem 2. Identify the Choices 3. Evaluate the advantages & disadvantages of each choice 4. Choose One 5. Act on your choice 6. Review your decision

16. Three Economic Questions 1. What goods and services will be produced? 2. How will the goods and services be produced? 3. What needs and wants will be satisfied with the goods and services produced?

17. Types of Economic Systems Economic System- a nation’s plan for answering the three economic questions. Two Basic Types: Command Economy- the resources are owned and controlled by the government. Market Economy- the resources are owned and controlled by the people of the country.

18. Characteristics of Each Economy Command Development of food products, vehicles, and houses is controlled by the government. Personal economic freedom is limited. Some assign people to specific schools and careers. Market Three economic questions are answered by individuals. Consumers “vote” for products with their dollars. Business chooses consumer’s wants & needs accurately=profit for business.

19. Mixed Economies Mixed Economy- combines elements of the command and market economies. All economies in the world today are mixed Where a country fits on the continuum of market & mixed economies determines its philosophy of government Rules, laws, treatment of people

20. Capitalism Capitalism- An economic system characterized by private ownership of businesses and marketplace competition. Limited social services Political system= democracy Multiple political parties

21. Socialism Socialism- Economic system with increased government involvement in people’s lives. Main goal= keep prices low for ALL people Provides employment for many Government runs key industries Provides social services (medical, pensions for elderly High taxes

22. Communism- Communism- Economic system in which the government has complete control, or totalitarianism. One political party- Communist People share common political & economic goals All who are able to work are assigned jobs= no unemployment Little to no economic freedom! No motivation!

23. Benefits of Capitalism Competition- The struggle between companies for customers. Profit- The money earned from conducting business after all costs and expenses have been paid.

24. Participating in a Market Economy Consumers: Have the power to determine who wins & loses Determine supply & demand Supply- the amount of goods producers are willing to make and sell. Demand- refers to consumer willingness and ability to buy products

25. What happens when supply & demand interact? Surplus- When supply exceeds demand. Shortage- When demand exceeds supply. Equilibrium- When the amount of a product being supplied is equal to the amount being demanded.

26. Economic Conditions Change Business Cycles- the movement of the economy from one condition to another and back again. 4 Phases: Prosperity Recession Depression Recovery

27. Business Cycles Prosperity- the peak in the business cycle. Recession- a period in which the economy begins to slow. Depression- a deeper recession that is spread throughout the entire economy. Recovery- follows a depression and is a time of economic improvement.

28. Measuring Economic Activity Gross Domestic Product (GDP)- the total dollar value of all final goods and services produced in a country during one year. 4 categories of economic activity: 1. Consumer spending 2. Business spending 3. Government spending 4. Exports of a country – imports into the country

29. Calculating GDP GDP per capita- output per person. GDP/Population= GDP per capita

30. Labor Activities Unemployment Rate- the portion of people in the labor force who are not working. ~must be looking for work & able to work Productivity- the production output in relation to the unit of input, such as a worker.

31. Consumer Spending Consumer Spending- measured through personal income and retail sales. ~retail sales include: automobiles, building materials, furniture, gasoline, clothing, food (grocery & restaurant), & drug stores.

32. Inflation vs. Deflation Inflation- an increase in the general level of prices. Most harmful on elderly/ fixed incomes 1960’s: 1-3% 1970’s-1980’s: 10-12% 1990’s – Present: 2-4%

33. Deflation- a decrease in the general level of prices. Recession/Depression periods Prices are lower/ People have less money Between 1929-1933, prices declined 25%

34. How is Inflation/Deflation Measured? Consumer Price Index (CPI)- a number that compares prices in one year with some earlier base year.

35. Interest Rates Interest- The price that is paid for the use of another’s money. Rates when consumers borrow more money, thereby the demand for money increases. Rates when consumers increase their savings & investments, thereby increasing the supply of money for others to borrow increases.