Why Societies Have Economies Civics and Economics 101
What are the basic wants or needs which every society must provide to be successful? • Food & Water • Clothing • Shelter
The Environment • What you need here in Virginia Beach is very different from what you might want in an Arctic climate – or in a more dangerous region – or in a place where clean water was not easily accessible. • The value of products will also vary accordingly. The value of a heavy coat in Alaska is clear, but what about in the Amazon Rain Forest? • Clean drinking water – bottled water, for example – is more expensive in regions where the water supply is frequently polluted.
Culture determines what people want • The types of clothing that people wear and the foods that they desire are often determined by the culture of individuals. • You probably don’t seek out fashionable burkas to wear to school – because our culture does not encourage women to cover their entire bodies the way some Islamic nations do. • You would be unlikely to eat the eyeballs of a seal for dinner, too. But in certain tribes on the Canadian Shield, that would be the most coveted portion of the animal. What, you don’t eat seals?
The Factors of Production • Factors of production are the resources people have for producing goods and services to satisfy their wants and needs.
The Factors of Production • Land • Labor • Capital • Entrepreneurship is often listed as a fourth factor of production; some would consider this character trait as a part of “labor.”
Labor One factor of production, labor, includes time and energy spent in producing goods. The labor force must also be talented for certain jobs, that is, they must have knowledge and skill in order to work productively.
LAND Another factor of production, land, is made up of he many natural resources that are needed to help produce goods and services. This might include soil, water, timber, fish and wildlife, or even energy sources.
Capital • Capital is anything produced in an economy that is used to produce other goods and services. It includes any tools, machines, or buildings used to produce goods and services. • NOTE: Money itself is sometime referred to as capital; money that can be invested is sometimes called financial capital.
Distribution and Consumption FILL IN THE BLANKS. The factors of production are combined in the process of production. Produced goods are then distributed. Finally, when goods and services have been produced and distributed, they are ready for consumption. Meaning, they are ready to be purchased and used by consumers!
Consumption Consumption is the act of buying or using goods and services. It is the role of the consumer in any economy. This is the ultimate goal of any economy – to promote consumption of goods and services.
Starbucks Coffee Farmers in Central American grew the coffee beans. The beans were roasted in Central America, and then shipped by rail to a port. From the port, the coffee beans were loaded into cargo ships, and delivered to Seattle, WA. The beans were packaged in a Starbucks factory, and then distributed to the Starbucks at Sandbridge Shopping Center. There, the beans were brewed by a chipper little Starbucks employee, who charged me about $2.50 for one little cup of coffee!
Opportunity Cost • The opportunity cost is what you choose not to do when you make a choice to buy something. Since you only have finite amount of money you can’t have everything. When I decide to fill my truck’s tank of gas, I lose the ability to purchase $65 worth of books or music. The opportunity cost is the highest valued benefit given up hen a choice is made.
$9.99 of something else you wanted! You know that you could have bought about four bags of Chipotle Cheddar Pretzel Chips! Why would you go buy Jay-Z’s Magna Carta album when you could have had pretzel chips!
Scarcity Scarcity means that the resources in any society are always s limited compared with the number and variety of wants that people have. Even in a very wealthy society, scarcity will exist due to the excessive wants of consumers.
Scarcity and Prices in a Free Market Economy There is an inverse relationship, in general, between scarcity and prices. For example, very scarce goods like diamonds or uranium – if there is a demand for the product – can be very expensive. On the other hand, products which are available in abundance, like water or wheat in the United States, are relatively cheap – even if there is demand for the product.