Transcript Economic Systems Study Guide

Satisfying Needs and Wants
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Satisfying Needs and Wants
• What are needs?
– Things that are required in order to live
– Food, water, clothing, clean air, shelter
• What are wants?
– Things that add pleasure or comfort to your life
– Movies, sports cars, luxury homes
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Satisfying Needs and Wants
• What are needs?
– Things that are required in order to live
– Examples: Food, water, clothing, clean air, shelter
• What are wants?
– Things that add pleasure or comfort to your life
– Movies, sports cars, luxury homes
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Satisfying Needs and Wants
Needs and wants are satisfied by purchasing goods and services.
• What are goods?
– Products that you can see and touch.
– Examples: Pencils, cell phones, shoes
• What are services?
– Activities that are consumed at the same time the are produced.
– They are intangible, which means they have no physical
characteristics.
– Examples: haircut, taxi ride, car wash
• The United States economy is the largest producer of goods
and services in the world.
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Satisfying Needs and Wants
Economic resources, also called factors of
production, are the means through which goods
and services are produced
• The types of economic resources are:
– Natural
– Human
– Capital
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Satisfying Needs and Wants
• Natural resources are raw
• Human resources are the
materials supplied by nature
people producing goods and
from the air, the earth, and
services. They contribute
water.
physical and mental energy
• Examples: Water, trees, oil,
to the production process.
minerals
• Examples: Factory
• What is the difference
workers, farmers, truck
between renewable and non
drivers, sales people
renewable resources?
– Renewable can be replaced,
like trees
– Nonrenewable can’t be
replaced, like oil
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Satisfying Needs and Wants
Capital resources are the tools, equipment, and buildings
and money that are used to produce goods and
services.
Examples: Hammers, buildings, cash, bulldozers, ovens
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Satisfying Needs and Wants
Entrepreneurial resource is the initiative to take a risk
and combine capital, human and natural resources to
develop a new product or a new business
Examples: Sam Walton (Wal-Mart), Bill Gates (Microsoft)
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Satisfying Needs and Wants continued
THE BASIC ECONOMIC PROBLEM:
Limited resources and unlimited wants and needs
• What is the relationship between scarcity and the
basic economic problem?
– Scarcity is not having enough resources to satisfy
every need or want.
– Scarcity IS the economic problem.
• As individuals and nations, we must make
CHOICES about how to use our resources and this
requires DECISION-MAKING.
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Satisfying Needs and Wants
• What is the economic decision-making process?
– It is choosing which wants and needs, among several
options, will be satisfied.
– Remember, because of scarcity, all wants and needs
cannot be met.
• What happens to choices in a tradeoff?
– A tradeoff is when you give up something to have
something else.
– Example: You can’t purchase the new Iphone you had
been saving for because you spent $150 on last minute
concert tickets last weekend.
• What is opportunity cost ?
– It is the value of what you give up in a trade off; the value
of the next best alternative you did not choose.
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Six steps of economic decision-making
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Economic Decision-Making
The six steps in the economic decision- making
process are:
1. Defining the problem
2. Identifying choices
3. Evaluating the advantages and disadvantages of
each choice
4. Choosing one choice
5. Acting on the choice
6. Reviewing the decision
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Economic Systems
• All nations face the basic economic problem of
scarcity of resources.
• An economic system is a nation’s plan for how
their available resources will be used to meet the
needs and wants of its citizens.
• The main types of economic systems are:
– Command
– Market
– Traditional
– Mixed
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Economic Systems
• Each nation’s economic system answers 3 main
questions:
– What goods and services will be produced?
– How will those goods and services be
produced?
– For whom will goods and services be
produced?
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Economic Systems
Command Economy
• An economics system in which the government
owns resources and dictates what is produced
• Who answers the 3 economic questions?
– The government
• Examples: Cuba, North Korea
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Economic Systems
Market Economy
• An economics system where goods and services
are owned and controlled by the people of the
country.
• Who answers the 3 economic questions?
– Individuals through buying and selling of goods
and services in the marketplace (anywhere that
goods and services are exchanged)
• Examples: United States, Japan
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Economic Systems
Traditional Economy
• An economic system in which goods & services
are produced the way they always have been
(customs) & centered on meeting the basic needs
of each family
• Who answers the 3 economic questions?
– Each family
• Examples: Third world countries in South America
and Africa
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Economic Systems
Mixed Economy
• Combines the elements of the command and
market economies.
• Varying degrees of government involvement in
the marketplace
• China, Canada, France
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The United States Economic System
• Businesses and individuals answer the 3
major economic questions, so it is
considered a market economy.
• Other concepts of the U.S. economy
– Capitalism: Refers to the private ownership of
resources by individuals rather than the
government
– Free enterprise or private enterprise:
Businesses can decide what to produce and
consumers can decide what to purchase
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The Principles of the U.S. Economic
System
• Private property – We can own, use, or dispose of things
of value
• Freedom of choice – We can make decisions
independently but we must accept consequences of
those decisions. (The government only regulates choice
when individual decisions may harm others.)
• Profit – money left from sales after all of the costs of
operating a business have been paid.
– To make a profit is the reason people and businesses take risks!
• Competition – the rivalry among businesses to sell their
goods and services.
– Competition forces businesses to keep costs low, provide good
customers service and search for new ideas.
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Supply and Demand
Consumers:
• buy and use goods and services
• include individuals, businesses, and government.
Consumers decide:
• what to buy, where to buy, and from whom to
buy
• what price they are willing to pay.
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Supply and Demand
Producers:
• individuals and organizations that determine
what products and services will be available for
sale
• invest resources and take risks to make a profit
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Supply and Demand
The market economy is based on the principles of
supply and demand.
Demand: the quantity of goods or services that
consumers are willing and able to buy.
– Consumers set the demand for goods and services.
– Demand influences how much producers will supply.
– Examples: iPods, a restaurant that sells good food at a
low price
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Supply and Demand
The market economy is based on the principles of
supply and demand.
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.
– Example: If people really want a product and are willing
to pay a high price for it, a business will make enough to
meet the consumers’ needs. If there is heavy
competition and a low price, businesses are less likely to
want to offer the product for sale.
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Supply and Demand Graphs
Market (equilibrium) price is the point where
supply and demand are equal.
– Consumers are satisfied with the price they
have to pay
– Businesses are satisfied
with the profit they are
making
Intro to Business, 6e, Thomson South-Western
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