Transcript Document
Economic Decisions and Systems “The reason most people fail instead of succeed is because they trade what they want most for what they want at the moment.” Objectives The learner will Identify the differences between wants and needs Examine the steps in the decision making process Understand the different economic systems Explore the concept of supply and demand Satisfying Wants and Needs What is the difference between and WANT and a NEED? Do you think people tend to use money for needs or wants? What is the difference between a GOOD and SERVICE? Do you think wants are more service based or good based? Wants and Needs Needs– things that are required in order to live Examples? Wants– things that add comfort and pleasure to your life Examples? Factors affecting wants and needs Country you live in Economic status of your family If certain wants are available in your area Wants and Needs Needs and Wants are unlimited New clothes New video game New shoes New cell phone New hairstyle New car Etc. Goods and Services Wants and needs are satisfied by purchasing and consuming goods and services. Good– things that you can see and touch Examples? Services– activities that are consumed at the same time they are produced (intangible) Examples? The U.S. Economy and Economic Resources China is the largest producer of goods and services in the world. U.S. is the 2nd largest. There is a high demand for goods and services in the U.S. because there is a large quantity of goods and services available. We need resources to produce these goods and services Economic resource– the means through which goods and services are produced. Three Kinds of Economic Resources Natural Resources—raw materials supplied by nature Examples? Supply is limited Human Resources– people producing goods and services Examples? Entreprenuer—the risk taker who uses resources in an entirely new way to create a new product or service Capital Resources– the products and money used in the production of goods and services Examples? Economic Choices The mismatch of unlimited wants and needs and limited economic resources is called the basic economic problem. Scarcity– not having enough resources to satisfy every need. Because of scarcity, we are forced to make choices Economic decision making– the process of choosing which wants among several options, will be satisfied. Tradeoffs and Opportunity Costs Tradeoff– giving up something to have something else Opportunity Cost– the value of the nextbest alternative that you did not choose. The benefit you get from choosing one thing should be greater than the benefit of choosing the other. The decision making process Define the Problem Identify the choices Evaluate the advantages and disadvantages Choose one Act on your choice Review your decisions The Three Economic Questions What goods and services will be produced? How will the goods and services be produced? What needs and wants will be satisfied with the good and services produced? How these questions are answered will determine which type of economic system that country will have Types of Economic Decisions Economic System– a nation’s plan for answering the three economic questions Command Economy Market Economy Traditional Economy Mixed Economies Command Economy Command Economy– the resources are owned and controlled by the government Government officials decide what and how goods are produced and how they will be distributed and shared. Personal economic freedom is limited Market Economy Market Economy– the resources are owned and controlled by the people of the country The three questions are answered by the interaction of people in the marketplace Marketplace– anywhere that goods and services exchange hands The government has limited involvment Traditional Economy Traditional Economy– goods and services are produced the way it has always been done Used in countries that are less developed and are not participating in the global economy Usually centered on meeting the basic needs of people Mixed Economies Mixed Economy– combines elements of the command and market economies Most nations are classified as a mixed economy What system is the U.S.? The U.S. Economic System Capitalism– the private ownership of resources by individuals, rather than by the government. (Also called free enterprise or private enterprise) Based on four important principles Private Property Freedom of Choice Profit Competition Four Principles Private Property– you can own, use or dispose of things of value Freedom of Choice– you can make decisions independently and must accept the consequences of those decisions. Only when those decisions harm others will the government get involved Profit– the money left from sales after all the costs of operating a business have been paid Competition– the rivalry among businesses to sell their goods and services Competition forces businesses to improve products, keep costs low, provide effective customer service, and search for new ideas Supply and Demand Consumer– a person who buys and uses goods and services Producer– individuals and organizations that determine what products and services will be available for sale Consumers set demand When consumers make decisions about what to purchase, they determine the demand for a product or service. Demand– the quantity of a good or service that consumers are willing and able to buy. A business can succeed or fail based on the demand for their product or service Demand curve– as prices decreases the number of consumers willing and able to purchase the product will increase Producers Establish Supply Knowing demand tells a business what type and what quantity of products and services to supply Supply– the quantity of a good or service that business are willing and able to provide. Supply curve– as the price increases, business will be willing to supply larger quantities of the product Determining Prices Prices are affected by the relationship between supply and demand Factors influencing demand If many people want a product, the price will increase If there are a lot of the same product, demand will be lower Factors influencing supply As the number of competitors increase, prices will stay low Natural disasters or unforeseen circumstances can affect supply Determining Market Price Supply, Demand and Competition determine the market price for a product of service. Market price– the point where supply and demand are equal.