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Economic Resources and Systems

Economic Resources and Systems. Chapter 2 Day 1. What is Economics?. Simply put, economics is the study of making choices. Why do we need Economics?.

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Economic Resources and Systems

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  1. Economic Resources and Systems Chapter 2 Day 1

  2. What is Economics? Simply put, economics is the study of making choices

  3. Why do we need Economics? We need economics because, we as individuals and as a society, experience scarcity (of raw materials) in relationship to our ever-growing needs and wants

  4. Economics examines how we make choices • A new car or college tuition? • More schools or more highways? • More free time or more income from work? • Buy gas or eat for a month? • It gives us a way of understanding how to make best use of natural resources, machinery, and people’s work efforts

  5. A basic economic problem for any society is how to manage its resources

  6. A resource is anything people can use, such as fuel, labor, or money, to make or obtain what they need or want

  7. Scarcity A scarcity is a shortage of resources to satisfy the wants and needs of its people Unlimited wants vs. limited resources Name a resource that is scarce

  8. Examples of Scarcity • Oil • Nurses • Water • Flu Vaccine • Skilled Workers • Time

  9. Factors of Production • Components necessary to produce a society’s goods and services • Natural Resources • Human Resources • Capital Resources • Entrepreneurial Resources

  10. Natural Resources Raw materials found in nature Basic elements that can be combined in various ways to create goods • Nylon – synthetic material derived from coal, water, and air Natural resources become factors of production when used to produce goods

  11. Renewable Resource Can be reproduced • Wheat • Cattle • Corn

  12. Nonrenewable Resource Limited • Coal • Iron • Crude Oil

  13. Human Resources The knowledge, efforts, and skills people bring to their work • Teachers • Coal miners • Bank managers • Farmers

  14. Capital Resources Things used to produce goods and services • Buildings • Materials • Equipment

  15. Entrepreneurial Resources Entrepreneurs recognize the need for new goods and services They improve on ways to use resources, or create and produce new ones

  16. Types of Economic Systems • Market economy • Command economy • Mixed economy Part 2 Notes Tomorrow

  17. Market Economy Economic decisions are made in the marketplace according to the laws of supply and demand

  18. Demand The amount or quantity of goods and services that consumers are willing to buy at various prices How many new release video games would you buy if each one costs…. • $90? • $45? • $15?

  19. Demand Curve for CDs Quantity of New Release Video Games Demanded

  20. Supply The amount of goods and services that producers will provide at various prices If you were a business owner, how many new release video games would you produce if you could sell them for… • $90? • $45? • $15?

  21. Supply Curve for CDs Quantity of New Release Video Games Supplied

  22. Equilibrium Price When the quantity demanded and the quantity supplied meet

  23. Equilibrium Price Supply Equilibrium Price P1 Demand Q1 Quantity of New Release Video Games

  24. The Law of Supply and Demand in Action “China Addicted to Oil, Too?” CBS News Reported 4/20/2006 “Food Chain Economics” CBS News Reported 7/20/2007

  25. Capitalism Private enterprise system • Resources are privately owned • You can own your own home • Your own land • Your own business • Government control is minimal • Primary role of government is to support the marketplace by removing obstacles such as trade barriers

  26. Incentives • Competition • Businesses compete for customers by producing better and cheaper products • Constant demand for new goods and services encourages entrepreneurship • Profit motive • The desire to make more money • Incentive to work harder and longer if you can make more money

  27. Problem • Owners and producers reap the most rewards. • Unskilled workers and older adults are often unable to afford basic needs such as health care

  28. Command Economy • Planned or managed economy • A central authority, usually the government, makes the key economic decisions • Communism • State controls all the resources for the common good • Socialism • State owns major resources and makes key economic decisions • However, individuals may own some businesses

  29. Advantages • Guarantees everyone an equal standard of living • The state provides you with a job, a place to live, and health care • Goods and services are distributed evenly

  30. Disadvantages • Little choice of what to buy • Goods that aren’t considered necessities are not available • Prices are fixed so there is no incentive to produce a better product • Wages are fixed • Doctors earn the same as an unskilled worker

  31. Mixed Economy • A combination of a market and command economy • The state takes care of people’s needs while the market takes care of their wants • The United States is said to have a mixed economy because privately owned businesses and government both play important roles.

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