Economic Decisions and Systems

Introduction to Business© Thomson South-Western

ChapterChapterChapterChapter

Economic Decisions and Systems

1-11-1 Satisfying Needs and Wants

1-21-2 Economic Choices

1-31-3 Economic Systems

1-41-4 Supply and Demand

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LESSON 1-1LESSON 1-1

Satisfying Needs and Wants

Goals Explain the difference between needs

and wants. Distinguish between goods and

services. Describe the types of economic

resources.


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Key Terms

needs wants goods services economic resources


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NEEDS AND WANTS

Needs are essential Wants add to the quality of life Needs and wants are unlimited


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>> C H E C K P O I N T

What is the difference between a need and a want?


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GOODS AND SERVICES Goods

Things that you can see and touch Products you can purchase to meet your

wants and needs Services

Activities that are consumed at the same time they are produced

Intangible Also used to satisfy wants and needs


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GOODS AND SERVICES

Goods and services are purchased by businesses as well as individual consumers.

Businesses supply the goods and services that meet business and consumer wants and needs.


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The U.S. Economy

U.S. is the largest producer of goods and services in the world.

U.S. citizens and businesses often incur debt through loans and credit cards in order to meet wants and needs.


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How do people satisfy their wants and needs?


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ECONOMIC RESOURCES Natural resources (Land) Human resources (Labor) Capital resources (Capital) Resources are limited

All products you consume begin with one or more natural resources.

Economic Resources are also called Factors of Production.


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What are the three types of economic resources? Give an example of each type of resource.


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Economic Choices

Goals Understand the basic economic

problem. Explain the steps in the decision-

making process.


Key Terms

Scarcity Economic Decision-Making Tradeoff Opportunity Cost

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Key Terms

Scarcity – means not having enough resources to satisfy every need.

Economic Decision-Making – is the process of choosing which wants, among several options, will be satisfied.

Tradeoff – When you give up something to have something else.

Opportunity Cost – is the value of the next-best alternative that you did not choose.


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THE BASIC ECONOMIC PROBLEM Choices – scarcity forces you to make

choices/decisions among alternatives. Tradeoffs and opportunity cost.

The benefit you get from your choice should be greater than the benefit from the next best choice


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What is opportunity cost? the value of the next-best alternative that you did not choose.

What is the basic economic problem? The basic economic problem is satisfying unlimited wants and needs with limited resources.


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THE DECISION-MAKING PROCESS1. Define the problem.

2. Identify the choices.

3. Evaluate the advantages and disadvantages of each choice.

4. Choose one.

5. Act on your choice.

6. Review your decision.


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What are the six steps in the decision-making process?


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Economic Systems

Goals Identify the three economic questions. Differentiate among the main types of

economic systems. Describe the economic system of the

United States.


Key Terms

economic system command economy market economy traditional economymixed economyCapitalism

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Key Terms economic system – A nation’s plan for

answering the three economic questions.

command economy – The resources are owned and controlled by the government.

market economy – The resources are owned and controlled by the people.


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Key Terms traditional economy – Goods and services are

produced the way it has always been done.

mixed economy – Combines elements of the command and market economies

Capitalism – Refers to the private ownership of resources by individuals, rather than by the government. It is another name for our economic system


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THE THREE ECONOMIC QUESTIONS What to produce? How to produce? What needs and wants to satisfy?


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THE THREE ECONOMIC QUESTIONS1. What to produce?

2. How to produce?

3. What needs and wants to satisfy?

All economies (or nations) of the world face the basic economic problem of scarcity of resources. They also have citizens with many basic needs and unlimited wants.

Each country must decide how the available resources will be used to meet the needs and wants.


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What are the main differences among the three economic systems?


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What are the main differences among the four economic systems? Command economy – government owns

and controls resources Market economy – individuals own and

control resources Traditional economy – based on customs

and traditions. Usually 3rd world countries Mixed economies – a blend of the command

and market economy. (Most prevalent).


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THE U.S. ECONOMIC SYSTEM – 4 basic principals

1. Private property

2. Freedom of choice

3. Profit

4. Competition


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The US Economic System (Capitalism) based on 4

important principals1. Private property-you can own, use, or

dispose of things of value.

2. Freedom of choice-you can make decisions independently and must accept the consequences of those decisions.


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THE U.S. ECONOMIC SYSTEM

3. Profit – is the money left from sales after all of the costs of operating a business have been paid.Profit is the HEART of the private enterprise system.

4. Competition – The rivalry among businesses to sell their goods and services.


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Name the four principles of the U.S. economic system.


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The US Economic System (Capitalism) based on 4 important principals Private Property Freedom of Choice Profit Competition


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Supply and Demand

Goals Describe supply and demand orally and

with graphs. Discuss how supply and demand affect

prices of products and services.


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Key Terms Consumer –is a person who buys and uses

goods and services. Producers –are individuals and organizations

that determine what products and services will be available for sale.

Demand – is the quantity of a good or service that consumers are willing and able to buy.

Supply – refers to the quantity of a good or service that businesses are willing and able to provide

Market Price – is the point where supply and demand are equal.


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PARTICIPATING IN A MARKET ECONOMY Consumers set demand Producers establish supply A graphic view


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DEMAND AND SUPPLY


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How does the price of a product affect demand and supply?

As prices decrease, the number of consumers willing and able to purchase the product (demand) will increase. As prices increase, businesses will be willing to supply larger quantities of the product.


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DETERMINING PRICE Factors influencing demand –if many

consumers want (or demand) a particular good or service, its price will tend to go up. e.g. Summer Rental in the summer

Factors influencing supply – competition, natural disasters, and other unforeseen circumstances.

Determining market price – Supply, demand, and competition determine the market price for a product or service.


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MARKET PRICE


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How is the market price for a product determined?The market price is the point at which supply and demand are equal.


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Chapter TEST coming up

Day 1 - Tomorrow you will answer unit questions in the text book.

Day 2 - Next you will complete a study guide and review for the test.

Day 3 - The following day you will complete a written test.

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Economic Decisions and Systems