Transcript Chapter 1 lecture

Chapter 1
Economic Decisions and Systems
Chapter 1: Economic
Decisions and Systems
 Lesson
Wants
 Lesson
 Lesson
 Lesson
1-1 Satisfying Needs and
1-2 Economic Choices
1-3 Economic Systems
1-4 Supply and Demand
Lesson 1-1
Satisfying Needs and Wants
Objectives:
 Be able to describe the difference
between a need and a want.
 Be able to distinguish between
goods and services.
 Be able to describe the types of
economic resources and give an
example of each.
Needs and Wants
 Needs = Things that are required in order
to live.
Examples: food, water, clothing, clean air, shelter
Other needs in today’s economy: good education,
employment, safety, transportation
 Wants = Things that add comfort and
pleasure to your life.
Examples: lobster tail, designer clothing, car, gps
system, ipod
Needs and Wants
 It’s not always easy to determine if
something is a need or want. The country
you live in, economic status, lifestyle, and
work help determine whether something is
necessary or not.
 Your needs and wants never end.
 Your wants can change from day to day.
 Everyone has unlimited wants.
 Wants are not the same for each person.
Maslow’s Hierarchy of Needs
Goods and Services
 Goods = Things you can see and touch.
They can be physically weighed or
measured.
a.k.a. products
Examples: pants, shoes, cell phone, apple
 Services = Tasks that people or machines
perform. Activities that are consumed at
the same time they are produced.
Examples: cutting hair, guitar lessons, cell phone
plan
Goods and Services
 You use services as well as goods to satisfy
your wants and needs.
 The service industry generally supplies
more wants than needs, but there are some
service businesses that satisfy needs.
 The United States is the largest producer of
goods and services in the world.
 Americans consume more than any other
country.
Economic resources
 Economic resources = the means
through which goods and services are
produced. a.k.a. factors of production
 3 kinds of economic resources
 1. natural – raw materials supplied by nature
(water, land, trees, animals, minerals, air, etc.)
 2. human – a.k.a. labor - people producing
goods and services (farmers, factory workers,
truck drivers, managers, cashiers)
 3. capital – products and money used in
production of goods and services (money, land,
buildings, tool, equipment, etc.)
 All products you consume begin with 1 or more
natural resources.
 The supply of many natural resources is limited.
 Individuals, businesses, and countries can compete
for access to and ownership of economic resources.
 Resources that have high demand or limited supply
will bring higher prices.
 An entrepreneur is a human resource that is a risk
taker who uses resources in an entirely new way to
create a new product or service. Without the creative
ideas of entrepreneurs and their belief that they can
develop a successful business, there would be fewer
choices of goods and services.
Review
 What is the difference between a want and a need?
 It is not always easy to determine the products and
services that are needs and those that are wants.
 How do people satisfy their wants and needs?
 Which of the following would an economist most likely
classify as a need? a.) gasoline b.) high school
diploma c.) television d.) part-time job to earn
extra money?
 What are the 3 types of economic resources?
Lesson 1-2
Economic Choices
Objectives:
Be able to describe the basic
economic problem.
Be able to describe the six step
decision making process.
The Basic Economic Problem
Unlimited Wants | Limited Resources
There are three reasons why wants and needs are
virtually unlimited:
 Goods eventually wear out and need to be replaced.
 New or improved products become available.
 People get fed up with what they already own.
The mismatch of unlimited wants and needs and limited
resources is called the basic economic problem.
The basic economic problem results from scarcity which
means not having enough resources to satisfy every
need.
Scarcity affects everyone, but some more than others.
Choices
Everyone makes decisions based on
scarcity. Scarcity forces you to make
choices or decisions among the
alternatives.
How do you decide which alternative will
satisfy you the most?
Economic decision making
The process of choosing which wants,
among several options will be
satisfied.
Following a logical process can help you
make better decisions.
Tradeoffs and Opportunity Costs
When you decide on one alternative, you give up on the
alternatives you might have chosen.
 Tradeoff = Giving up something to have something
else.
 Example: You aren’t able to buy a new CD because
you decided to spend you money on pizza with your
friends.
 Opportunity cost = the value of the next-best
alternative that you did not choose (what you are
giving up by the choice that you make).
 Example: You choose pizza, the opportunity cost was
a new CD.
The benefit you get from your choice should be greater
than the benefit from the next-best choice.
The Decision-Making Process
1. Define the Problem
2. Identify the choices.
3. Evaluate the advantages and
disadvantages of each choice.
4. Choose one of the choices.
5. Act on your choice.
6. Review your decision.
The Decision-Making Process
Step 1: Define the problem.
Example: You only have two hours of study time and
three tests the next day. The problem is how to best
use your time in a way to bring the most satisfaction
(good test grades).
Step 2: Identify the choices.
Example:
 Spend the whole 2 hours studying for 1 test.
 Quick review of all three subjects.
 Review the subject you’re most unsure of until you
know the material then move on to the next weakest
subject.
 Review the subject with the lowest grade.
 Review the material that is most interesting.
The Decision-Making Process
Step 3: Evaluate the advantages and
disadvantages of each choice.
 List the pros and cons of the choices
from step 2.
Step 4: Choice one.
 Select the choice that you believe will be
the best for you at this particular time.
Make sure to realize the consequences of
your choice.
The Decision-Making Process
Step 5: Act on your choice.
 Do whatever you have chosen. Remember, life
is full of choices. No matter what you do, there
may be times when you will regret a decision.
Step 6: Review your decision.
 If you had to do it all over again, would you
make the same choice? Use it as a learning
experience. Some decision have to be made
quickly and some with little information.
Lesson 1-3
Economic Systems
Objectives:
Be able to list the 3 economic
questions.
Be able to describe the differences
among the main types of economic
systems.
Be able to describe the economic
system of the United States.
Three Economic Questions
All economies (or nations) of the world
face the basic economic problem of
scarcity of resources.
Each country must decide how the
available resources will be used to
meet the needs and wants.
All economies must answer the three
economic questions
Key Economic Questions
1. What goods and services will be produced?
Should the resources be used to provide consumer
goods, industrial goods, or military goods?
2. How will be goods and services be
produced?
What kinds of industries and equipment should be
used?
3. For whom should they be produced?
Which of its citizens should benefit from what is
produced?
Types of Economic Systems
A nation’s plan for answering the three economic
questions is called its economic system.
Deciding how to use the resources and what to produce is
a difficult decision.
The type of economic system is based on how much the
government is involved in the marketplace.
Types of Economic Systems:
 Command Economy
 Market Economy
 Traditional Economy
 Mixed 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.
Command Economy


For example, in the former USSR, state planners decided
what was to be produced. They passed orders down to
factories, allocating raw materials, workers, and other
factors of production to them. Factories were then told how
much they should produce with these resources and where
they should be sent.
Predictably, the products from this limited number of
choices sell out quickly, disappearing from store shelves.
Why? Because factories failed to meet their production
quotas, perhaps, or because the central planning group
underestimated how many of the product people want to
buy at the prices they set. In either case, unless the
planners take steps to increase production, raise prices, or
both, the shortages will occur. If there was a shortage of
goods in the shops, then goods would be rationed through
queuing.
Market Economy
The resources are owned and controlled by
the people of the country. The three
economic questions are answered by
individuals through buying and selling of
goods and services in the marketplace.
Usually found in countries that have a
democratic form of government.
No one directs consumers to buy something or
tells businesses what they must produce.
The government has limited involvement.
Traditional Economy
 Goods and services are produced the way it
has always been done. Things are done
according to tradition.
 Goods are produced using techniques and
processes handed down from generation to
generation. Goods are typically produced by
hand with simple tools.
 Generally found in countries that are less
developed and not participating in the
global economy.
 Usually centered on meeting the basic
needs such as food, clothing, and shelter.
Mixed Economy
 Combines the elements of the
command and market economies.
 Most nations of the world can be
classified as a mixed economy.
Economic Systems
 Prior to 1990, the Soviet Union operated
under a command economic system called
Communism. During this type of economy,
consumers found it difficult to find products
such as bread or a hammer.
 China has a type of communist government
which controls most of the resources and
decisions but the economy is adopting
elements of a market economy.
 The U.S. economy best fits the definitions
of market economy.
U.S. Economic System
 Another name for the economic system in the United
States is capitalism. Also referred to as free enterprise
or private enterprise.
 Capitalism refers to the private ownership of
resources by individuals, rather than by the
government.
 The U.S. economy is based on 4 important principals.
1. Private property
2. Profit
3. Freedom of choice
4. Competition
U.S. Economic System
1. Private property is your right to
own, use, or dispose of things of
value. You can own anything you
want and decide what to do with is as
long as you don’t break any laws.
Also, if you invent something you are
protected from others taking your
idea.
U.S. Economic System
2. Freedom of choice means that you
can make decisions independently
and must accept the consequences of
those decisions.
Consumers can decide where to shop,
what to buy, and what they want to
spend.
U.S. Economic System
3. Profit is the money left from sales
after all costs of operating a business
have been paid. It’s the reward for
satisfying the needs and wants of
consumers. Referred to as the heart
of private enterprise.
Businesses invest resources and take
risks for the primary purpose of
earning a profit.
U.S. Economic System
4. Competition is the rivalry among
businesses to sell their goods and services.
It’s a contest to win customers.
Competition forces businesses to improve
products, keep costs low, provide effective
consumer service, and search for new
ideas.
The government in market economies enact
laws to help assure that competition exists
in the marketplace.
Lesson 1-4
Supply and Demand
Objectives:
Be able to describe how supply
and demand affect prices of
products and services.
Participating in a Market Economy
In a market economy, buyers and sellers use
the marketplace to make economic
decisions.
A consumer is a person who buys and uses
goods and services. Consumers decide
what to buy, where to buy, from whom to
buy, and what price they are willing to pay.
Producers are individuals and organizations
that determine what products and services
will be available. Producers pay close
attention to the needs and activities of
consumers.
Participating in a Market Economy
If everyone is out in the marketplace
doing their own thing, how does the
economy work?
Participating in a Market Economy
If everyone is out in the marketplace
doing their own thing, how does the
economy work?
Supply and demand is what makes the
market economy work.
Consumers Set Demand
When consumers make decisions about what
they will purchase, they determine the
demand for goods and services.
Demand is the quantity of a good or service
that consumers are willing and able to buy.
Understanding demand tells a business what
type and what quantity of products and
services to supply.
Producers Establish Supply
Supply refers to the quantity of a good or
service that businesses are willing and able
to provide.
If consumers want a popular product and are
willing to pay a high price for it, businesses
will provide the product.
If competition keeps the price low or
consumers aren’t buying the product,
businesses are less likely to offer the
product or service.
Demand Curve
The demand curve for a
product illustrates the
relationship between
the price of a product
and the quantity
demanded by
consumers.
In the graph, when the
price is the highest
($5.00), there is less
demand (10). When
the price is low
($1.00), the demand is
high (53).
Supply Curve
The supply curve
illustrates the
relationship between
the price of the
product and the
quantity businesses
will supply.
In the graph, When the
price is low ($1.00),
businesses are less
likely to produce (11),
but when the price is
high ($5.00),
businesses are more
likely to supply (60).
Determining Price
Prices are affected by the relationship between
supply and demand, plus other factors.
Factors Influencing Demand:
1. Price
2. Choices
Factors Influencing Supply:
1. Competition
2. Natural disasters
Determining Market Price
Supply, demand, and competition
determine the market price for a
product or service.
Market price is the point where supply
and demand are equal.
Supply and Demand Curve
The supply and demand curves
are combined on one graph
to illustrate how supply and
demand are related. The
market price is where the two
curves intersect.
In the graph, the market price is
the intersection of the supply
and demand curves. The
market price would be about
$2.50. Consumers are
willing to buy about 35 of the
product and businesses are
willing to supply the same
number when the price is
$2.50.