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Economic Decisions and Systems

CHAPTER 1. Economic Decisions and Systems. 1-1 Satisfying Needs and Wants 1-2 Economic Choices 1-3 Economic Systems 1-4 Supply and Demand. 1-1. Satisfying Needs and Wants. OBJECTIVES Explain the difference between needs and wants . Distinguish between goods and services.

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Economic Decisions and Systems

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  1. CHAPTER 1 Economic Decisions and Systems 1-1 Satisfying Needs and Wants 1-2 Economic Choices 1-3 Economic Systems 1-4 Supply and Demand

  2. 1-1 Satisfying Needs and Wants OBJECTIVES Explain the difference between needs and wants. Distinguish between goods and services. Describe the types of economic resources.

  3. Chapter 1 Key Terms • needs • wants • goods • services • economic resources

  4. Chapter 1 NEEDS AND WANTS • Needs are essential • Wants add to the quality of life • Needs and wants are unlimited • At least in PA, needs are (for the most part) not taxed. Wants tend to be taxed.

  5. Ex: TV . . . . . Chapter 1 With your partner, make a list of G&S that are wants but are “sold” to us as needs…

  6. In small groups, prepare a list of five needs that you agree would be similar to the needs of your parents when they were your age. Then list five needs of yours that you agree would likely be different from your parents when they were your age. Be prepared to justify why the items on your list are needs and not wants. Lists will be used at the end of the period. Chapter 1 Needs and Wants have changed over the years

  7. Checkpoint >> What is the difference between a need and a want? Chapter 1 Answer • Needs are those things required to live, such as food, clothing, and shelter. • Wants are things that add comfort and pleasure to our lives such as television, music CDs, and movies. • The service industry (largest industry) addresses more wants than needs. How does this relate to unemployment rates during an economic recession?

  8. Chapter 1 Additional Needs • Clean air • Water • Good education • Employment • Safety • Transportation • Medical Care • Medication

  9. Chapter 1 GOODS AND SERVICES • Goods and services for businesses and consumers • Both businesses and individuals are consumers but have different goals • Different quantities to purchase • For use in business AND for resale

  10. Chapter 1 GOODS AND SERVICES (continued) • The U.S. economy • U.S. is the largest producer of G&S in the world, • Americans are also the largest consumer group in the world. • Drawbacks: • Produce more garbage per person per year. • More debt through credit cards and loans.

  11. Chapter 1 ECONOMIC RESOURCES~the means through which G&S are produced • Natural Resources- • materials supplied by nature • Human Resources- • people who produce G&S • Capital Resources- • products and money used in the production of G&S

  12. Chapter 1 ECONOMIC RESOURCES (continued) • Resources are limited ~ SCARCITY • Individuals, businesses, and countries compete for access and ownership. • The more scarce, the higher the price and the less that can be produced.

  13. Examples of each type of resource: Chapter 1 • Natural: water, land, trees, animals, and minerals. • Human: labor (people who run farms and factories, transport goods, provide services, or manage businesses, even Entrepreneurs…) • Capital: money, land, buildings, tools, and equipment. • Venture Capital

  14. Page 11 • 1-4 Chapter 1 Reinforcement 1-1

  15. 1-2 Economic Choices Goals Understand the basic economic problem. Explain the steps in the decision-making process.

  16. Chapter 1 Key Terms • scarcity • economic decision-making • tradeoff • opportunity cost

  17. Chapter 1 THE BASIC ECONOMIC PROBLEM… SOLVED? • SCARCITY! = basic economic problem • We make CHOICES as people and as a nation regarding our scarce economic resources • Economic Decision Making Process • Brainstorm effective AND ineffective decision makers. What do you think makes them effective/ineffective? What do you think they do or do not do? • Tradeoffs and opportunity costs…

  18. When you have to give something up to have something else. • Example: I want to go to the dance next weekend, but the tradeoff will be that I will not be able work my usual shift at my part-time job. Chapter 1 What is a tradeoff?

  19. What is opportunity cost? Chapter 1 • Opportunity cost is the value of the next best alternative that you don’t choose. • It is what you are willing to give up in order to have your first choice. • In the ‘dance’ example, the opp. cost is the money that I will not earn if I take off work to go to the dance.

  20. Chapter 1 THE DECISION-MAKING PROCESS • Poor Business Decisions in our History • How to avoid a bad decision… • http://blog.vistage.com/business-leadership/how-to-avoid-a-bad-decision-small-business-owners-can-help-themselves/ 1. Define the problem. 2. Identify the choices. 3. Evaluate the advantages and disadvantages of each choice. 4. Choose one. 5. Act on your choice. • Review your decision.

  21. Be specific! • Class Example: Chapter 1 1. Define the problem

  22. There are often MANY alternatives. • Consider each possibility! • Create an actual list of realistic possibilities. • Class Example: Chapter 1 2. Identify the choices

  23. Weigh the PROs and CONs of each possibility. • Write them down! • (This process works…For real!) • Class Example: Chapter 1 3. Evaluate the advantages and disadvantages of each choice.

  24. Realize that every choice has its consequences and prepare yourself to handle them. • Know and understand the tradeoffs and opportunity costs associated with your decision. • Class Example: Chapter 1 4. Choose one.

  25. Timing is critical! When should you act to maximize your results? • Class Example: Chapter 1 5. Act on your choice.

  26. Would you make the same choice again? • What (if anything) would you do differently? • This step should make future decisions easier. • Class Example: Chapter 1 6. Review your decision.

  27. You have just been given $10,000, with the only stipulation that it MUST be spent on a service or something tangible (cannot be saved). • Using just the first4 steps of the 6-step decision making process, decide what you will do with the money. • List each step separately and be thorough! • In steps 2 and 3, consider a minimum of two possible alternatives with pros and cons for each. Chapter 1 With your partner, complete the following… (on the paper used for your Bell Ringer activity)

  28. Page 15 • 1-3 and • Choose 4 or 5 Chapter 1 Reinforcement

  29. 1-3 Economic Systems Goals Identify the three economic questions. Differentiate among the main types of economic systems. Describe the economic system of the United States.

  30. Chapter 1 Key Terms • economic system • command economy • market economy • traditional economy • mixed economy • capitalism

  31. Chapter 1 THE THREE ECONOMIC QUESTIONS • What to produce? • Butter V. Guns Dilemma • How to produce? • Skilled labor, technology, automation, simple tools, hand-made, etc… • For whom to produce? • Whose needs and wants to satisfy

  32. A nation’s plan for answering the 3 economic questions and for dealing with the basic economic problem of scarcity. • 3 main types of economic systems… • Traditional • Command • Market (ofMixed) Chapter 1 Economic System:

  33. Operate according to tradition and custom Developing area of Latin America, Asia, Africa, and the Middle East Traditions still passed down from generation to generation Consume their own products Meets basic needs for shelter, food, and clothing Chapter 1 TRADITIONAL ECONOMY

  34. ‘Centrally Planned’ economy Resources are owned and controlled by the government Government answers the 3 economic questions Limited individual freedom Cuba, Libya, Iran, N. Korea, Myanmar (Burma), Saudi Arabia, China, and Vietnam Chapter 1 COMMAND ECONOMY

  35. Resources are owned and controlled by the people of the country 3 Economic questions are answered by individuals through buying and selling of G&S Consumers and businesses make decisions based on their own self-interest Chapter 1 MARKET ECONOMY

  36. Combines Market and Command economy • Why is government involvement necessary in a Market economy? Chapter 1 (MIXED ECONOMY)

  37. Chapter 1 Market Vs Command Economy Socialism Capitalism Gov’t Control High Income Low Income Middle Income Mid-Low Income

  38. Checkpoint >> What are the main differences among the three economic systems? Chapter 1 Answer • The main differences between the economic systems are found in the ways in which the three economic questions are answered.

  39. Chapter 1 4 Characteristics/Principles of the U.S. ECONOMIC SYSTEM • Private property • Freedom of choice • Profit ~ (Profit Motive) • Competition Discuss with your partner an example of each characteristic/principle in our economy.

  40. Page 22 • 1-3 and • Choose 4 or 5 Chapter 1 Reinforcement

  41. 1-4 Supply and Demand Goals Describe supply and demand orally and with graphs. Discuss how supply and demand affect prices of products and services. M&M Activity

  42. Chapter 1 Key Terms • consumer • producers • demand • supply • market price

  43. Chapter 1 PARTICIPATING IN A MARKET ECONOMY • Consumers set demand • Producers establish supply • A graphic view

  44. Chapter 1 Car Wash Example 10 9 8 7 6 5 4 3 2 1 0 Consumers (Demand) MARKET PRICE Producers (Supply) $0 $2 $4 $6 $8 $10 $12

  45. Chapter 1 DEMAND AND SUPPLY

  46. Chapter 1 MARKET PRICE

  47. Checkpoint >> How does the price of a product affect demand and supply? Chapter 1 Answer • As prices decrease, the number of consumers willing and able to purchase the product (demand) will increase. • As prices increase, businesses will be willing to supply larger quantities of the product.

  48. Chapter 1 DETERMINING PRICE • Factors influencing demand • Weather, climate, timing • Competition, substitutes • Factors influencing supply • Weather, climate, natural disasters • Competitors • Determining market price • Supply, Demand, and Competition

  49. Reinforcement 1-4 Page 26 (1-3 and 4 or 5) & CHAPTER 1 REVIEW Pages 28-29 (1-30) Chapter 1

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