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The Business in the Global Economy1.00 . 1 Objective 1.01 Understand economic systems 2 Topics Satisfying needs and wants Basic economic problem Six steps of economic decisionmaking Main types for economic systems Market economy self-regulating principles 3 Satisfying Needs and Wants 4 Satisfying Needs and Wants Needs are required in order to live. Wants are things that add comfort and pleasure to your life. 5 Goods & Services Goods are things that you can see and touch. Services are activities that are consumed at the same time they are produced. The United States economy is the largest producer of goods and services in the world. http://www.econedlink.org/interac tives/index.php?iid=101 6 7 Economic Resources Economic resources: How goods and services are produced. The types of economic resources are: Natural Human Capital 8 Human and Natural Resources Natural resources are raw materials produced by nature. Human resources are the people who contribute physical and mental energy to the production process. 9 Capital Resources Capital resources are the tools, equipment, and buildings that are used to produce goods and services. Examples: Trucks Printers, computers Factories, Schools, Office space 10 Economic Problem & Scarcity Basic economic problem - Limited resources to satisfy unlimited needs and wants. Scarcity is not having enough resources to satisfy the unlimited needs and wants. The scarcity of resources for satisfying needs and wants influences choices. 11 Economic Decision-Making Economic decision-making is the process of choosing which wants, among several options, will be satisfied. Tradeoff is the process of giving up something for gaining something else. Opportunity cost is the value of the next-best alternative that you did not choose. 12 13 Economic Decision-Making Defining the problem 2. Identifying choices 3. Evaluate advantages / disadvantages of each choice 4. Choosing one choice 5. Acting on the choice 6. Reviewing the decision 1. 14 Economic Decision-Making continued Try to solve a problem Problem: Adjust the foundation of a house Choices: Ignore the problem Contact companies located in the same city Contact companies located in the next city Contact companies located in other cities What choice would you make? 15 Economic Decision-Making continued Some advantages: location of local companies, companies that guarantee of services, and companies that provides simple explanation of necessary services Some disadvantages: prices for services and location of company in next city or other cities 16 Economic Decision-Making continued Choosing one choice: A local company that guarantees services and provides simple explanation of services. Acting on choice: Schedule for local company to provide services of adjusting foundation of house. Reviewing decision: Routinely check on condition of foundation of house. 17 Tony is trying to decide on which cars to sell at his dealership. He completed a spreadsheet to compare the options of cars. Which part of economic decision-making process has he performed? A. Defining the problem B. Evaluating the advantages and disadvantages of each choice C. Choosing one choice D. Acting on a choice 18 Economic Systems 19 Three Economic Questions What to produce? How to produce? For whom to produce? 20 Economic Systems An economic system is a nation’s plan for answering the three economic questions. The main types of economic systems are: Command or Communist Market Traditional Mixed 21 Economic Systems Who owns the resources in the main types of economic systems? Command Centered on family Market Government Traditional The people Who answers the economic questions? 22 Economic Systems A command /communist economy the government owns resources and dictates what is produced. Examples: China and Cuba -a central leadership group expecting all the profit from production. Market economy goods and services are owned and controlled by the people. Example: local company choosing to produce gaming software. Marketplace is anywhere that goods or services exchange hands. 23 Economic Systems Traditional economy, goods and services are produced the way it has always been done (customs) and centered on family. Examples: Africa, Asia, Latin America and the Middle East. Mixed economy combines the elements of the command and market economies. Example: U.S.A. 24 Market economy self-regulating principles 25 United States Economic System Capitalism allows the freedom of consumption and production of goods and services. The economic system of the United States is based on capitalism. 26 United States Economic System continued The four principles of U.S. economic system are: Private property – can own, use, or dispose of things of value. Freedom of choice – can make decisions independently and must accept consequences of those decisions. Profit – money left from sales after all of the costs of operating a business have been paid. Competition – the rivalry among businesses to sell their goods and services. 27 Market Economy A consumer buys and uses goods and services. Example: A local company choosing to produce gaming software. Consumers decide what to buy, where to buy, from whom to buy, and what price they are willing to pay. A consumer includes individuals, businesses, and government. 28 Producers Producers are individuals and organizations that determine what products and services will be available for sale. Producers determine what products and services will be available, what needs and wants they will satisfy, and the prices they want to receive. 29 SUPPLY & DEMAND The market economy is based on the principles of supply and demand. Demand of goods or services that consumers are willing and able to buy. Example: The purchase of I-Phone applications increasing daily. Supply refers to the quantity of goods or services that businesses are willing and able to provide. Producers establish the quantity of goods or services that will be produced to meet the demands of consumers. 30 Consumers set the demand for goods and services. Demand influences how much producers will supply. Supply and Demand Graphs Supply Examples: Many companies are creating an mp3 player, therefore the price drops. Only a few companies started selling tablets, such as the iPad, so the price was high when they were introduced to the public. 31 Intro to Business, 6e, Thomson South-Western Supply and Demand Graphs Intro to Business, 6e, Thomson South-Western Demand Examples: High demand for a new gaming console or electronic item causes the price to rise. Last year’s fashions go “out of style” and drop in price occurred. 32 Supply and Demand Graphs Market (equilibrium) price is where supply & demand are equal. 33 Intro to Business, 6e, Thomas SouthWestern