Essential Standard 1.00 Understand the role of business in the global economy.
Objective 1.01 Understand economic systems.
EQ • How do businesses satisfy needs and wants? • What are the 6 steps necessary for making choices? • What is the relationship between who answers economic questions and the type of economic systems that exists in a country? • What are the self-regulating principles of a market economy?
Satisfying Wants and Needs • What are needs? • What are wants? • Wants: Things not necessary for survival but which add comfort and pleasure to our lives. • Wants never end. Wants are limited only by our imagination. • Needs: Things that are necessary for survival
Satisfying Wants and Needs • What are goods? • What are services? • Goods: things you can see and touch • Services: tasks that people or machines perform • The United States economy is the largest producer of goods and services in the world.
Satisfying Wants and Needs • How do businesses use economic resources to produce goods and services? • Resources: anything that people can use, such as fuel, labor, or money, to make or obtain what they need or want. • The types of economic resources are: • Natural • Human • Capital • Entrepreneurial
Natural Resources • Natural resources are raw materials supplied by nature that come from the earth, the water, or the air and are used to produce goods. • Renewable resources are resources that can be replaced • Nonrenewable resources are resources that cannot be replaced
Human Resources • The people who contribute physical and mental energy to the production process.
Capital Resources • The tools, equipment, and buildings that are used to produce goods and services. Buildings Equipment Tools
Entrepreneurial Resources • The initiative to combine natural, human and capital resources to produce goods or services.
Satisfying Wants and Needs • The basic economic problem exists due to limited resources for satisfying 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.
Satisfying Wants and Needs • What is the purpose of economic decision-making? • Economicdecision-making is a means of choosing a course of action among several alternatives.
Opportunity Cost • What happens to choices in a tradeoff? • the process of giving up something for gaining something else. • What is opportunity cost? • the value of the next-best alternative that you did not choose. • Example: Spending $1.00 on a candy bar or spending that $1.00 on a can of soda. Attending College vs. Not Attending College Lifetime earnings of a college graduate vs. Immediate earnings of high school graduate
Economic Decision Making Process 1. Define the problem. 2. Identify the alternatives. 3. List all the advantages and disadvantages. 4. Choose among alternatives. 5. Act on your choice. 6. Evaluate your decision.
Values • The beliefs and principles you consider important, correct, and desirable; the ideals in life that are important to you; principles by which a person lives • Each decision made is affected by the values and goals an individual possesses.
Goals • Short term goals are goals you expect to reach within a few days or a week. • Examples: pass a quiz, win Friday’s game • Intermediate goals are goals you expect to reach in the next few months or a year. • Examples: pass midterm, HS graduation (Seniors) • Long-term goals are goals you expect to reach over a period of several years. • Examples: career, marriage, college
Economic Systems What are the three economic questions that all economies must answer? • What will be produced? • By whom will it be produced? • For whom will it be produced?
Economic Systems • An economic system is a nation’s plan for answering the three economic questions. • The main types of economic systems are: • Market or Capitalism • Command or Communist • Mixed or Socialist • Traditional
Who owns the resources in the main types of economic systems? Command Market Traditional Socialism? Centered on family Government The people Economic Systems
Capitalism • An economic system where the basic economic decisions are based on the actions of individual people and businesses participating in many different markets. • Advantages: • This economic system produces goods and services that people want or need and that will bring a profit to the sellers. • Freedom of choice. • Price plays an important role in the market place. Competition ensures that prices stay low. • Government does not dictate what, how or for whom to produce.
Capitalism • Disadvantages: • Citizens who are productive are the only ones who are rewarded. • The wealth of the economy is not evenly distributed. • Countries: • United States, Japan, Germany, Canada, and Great Britain
Command Economy/Communism • An economy in which the government makes ALL decisions concerning the important economic questions. • Advantages: • Can make a dramatic change in a short time on production of goods. • Each person is provided with a job with certain medical and social services. • Disadvantages: • Consumer goods and services rank low on the list of priorities for that country. Few consumer wants are met. • A lack of incentive to work hard. (No competition among businesses.) • Limits an individual’s choice to make his or her own economic decisions. • Countries: • North Korea, China, and Cuba
Mixed Economy/Socialism • An economic system in which the government owns major industries (like railroad systems, steel, and iron), but allows for private ownership of other businesses. • Advantages: • Government and private business work together. Ownership of resources is shared. The government decides who should receive the goods and services. • Individuals are provided with medical services, lifelong welfare services, and social security benefits to everyone.
Mixed Economy/Socialism • Disadvantages: • Workers are taxed at an extremely high rate to pay for all that the government provides. • This high tax rate discourages private business. • The high tax rate also lessens consumers’ spendable income to make for fewer choices in the marketplace. • Countries: • Sweden and France
Traditionalism • An economy in which people do things the way they have always been done. • Advantages: • Everyone has a role in the economy. • Economic life is stable and community life continuous. • Disadvantages: • Discourages new ideas and ways of doing things. • Growth is limited, so this economy falls behind other kinds of economies. • Countries: • Societies living in rain forests of Latin America, parts of Africa, and the Middle East. • Amish
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.
United States Economic System 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.
United States Economic System • 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.
Market Economy What is the role of consumers in a market economy? A consumer 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. A consumer includes individuals, businesses, and government.
Market Economy What is the role of producers in a market economy? Producers determine what products and services will be available, what needs and wants they will satisfy, and the prices they want to receive.
Market Economy The market economy is based on the principles of supply and demand. Demand is 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. A marketplace is anywhere that goods or services exchange hands.
Market Economy • 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. • What are some examples of producers of supplies?
Supply and Demand Graphs Intro to Business, 6e, Thomson South-Western
Supply and Demand Graphs Intro to Business, 6e, Thomson South-Western
Supply and Demand Graphs Market (equilibrium) price is the point where supply and demand are equal. Intro to Business, 6e, Thomson South-Western