Business Principles A
Mrs. Sorrell
 Shortage of resources
 Basic economic problem for any society is how to manage its
resources
 The world has several resources that are scarce because of the
demand of the population
 Here are the top six:






Water
Oil
Natural Gas
Phosphorus
Coal
17 Rare earth elements
 All of the components necessary to produce a society’s
goods and services
 Wheat growing in the ground
 Tractor that harvests it
 Labor that turns it into flour
 Natural Resources
 Human Resources
 Capital Resources
 Entrepreneurial Resources
 Raw material found in nature
 Trees make paper
 Fish harvested for food
 Basic elements that can be combined in various ways to create goods
 Economy of a country is often based on its natural resources
 Oil production—Saudi Arabia
 Coffee crops—Latin American countries
 Renewable/nonrenewable
 Renewable=Products that can be reproduced
 Wheat and cattle
 Nonrenewable=limited resources
 Coal, iron and oil
 Amount of natural resources available to a society has a direct effect on its economy
 Producing goods and services requires many people
 Knowledge
 Efforts
 Skills
 Labor can be
 skilled or unskilled
 Physical or intellectual
 Labor unions
 Created because workers believed that big business did not treat them fairly
 Negotiate with management for better pay, hours and working conditions in a process
known as collective bargaining
 Common in manufacturing sector: steel, automobiles, and tires
 NOT the same as capital/money
 Things used to produce goods and services
 Buildings: supermarkets
 Materials: medical supplies
 Equipment: delivery trucks, cash registers, computers, tractors

 Entrepreneurs
 Recognize the need for new goods and services
 Improve on ways to use resources
 Create and produce new products
 Henry Ford perfected the factory assembly line method of
mass production
 Key to dealing with scarcity—develop new resources and
technologies
 Basic economic questions
 What should be produced?
 Resources used for one purpose cannot be used for something else
 Land used for growing wheat cannot grow corn
 How should it be produced?
 Methods of production?
 Number of people required?
 Quality of items produced?
 Quantity of available resources?
 Who should share in what is produced?
 Choosing how to distribute probably interests people most
 People can usually have as many goods and services as they can afford
 How do societies determine the income earned by each individual in that society?
 Economics=how society chooses to use resources to
produce and distribute goods and services for people’s
consumption
 Primary goal: to provide people with a minimum standard
of living, or quality of life
 There are two basic and opposing economic systems
 Market economy
 Command economy
 Economic decisions are made in the market place
according to the laws of supply and demand
 Price plays an important role in the market economy
 Will consumers pay more?
 Can they earn a profit at this price?
 Should we cease to produce this product?
 Demand is determined by consumers
 Defined: the amount or quantity of goods and services that
consumers are willing to buy at various prices
 The higher the price the fewer the customers
 The lower the price the more consumers will buy
 Supply is determined by the producer
 Defined: amount of goods and services that producers will
provide at various prices
 Demand and supply work together
 When the quantity demanded and the quantity supplied meet, this
is called equilibrium price
 Capitalism—the private enterprise system
 Characteristics of capitalism
 Resources are privately owned
 Start your own business
 Minimal government control over the market
 Profit motive—the desire to make more money
 Competition—businesses compete for customers by
producing better and cheaper products
 Problem with a market economy
 Owners and producers reap the most rewards
 Unskilled workers and older adults are often unable to afford basic
needs such as health care
 US CEO’s make almost 500 times as much as the average blue-collar worker
 Defined: a central authority makes the key economic decisions;
usually the government or state
 AKA planned or managed economy
 Two types
 Communism is a strong command economy
 State makes all the economic decisions
 Controls all resources for common good
 State decides what to produce, how much, and how to distribute
 China, Cuba, and Latin American countries
 Socialism is a moderate command economy
 Some form of private enterprise
 State owns major resources, such as airlines and steel, and makes key economic
decisions
 Individuals may own some businesses
 France and Sweden are examples
 Advantages
 Guarantees everyone an equal standard of living
 State provides you with a job
 State provides you a place to live
 State provides you with health care
 State takes care of utilities, transportation, and defense
 Disadvantages
 Managers get the blame when things go wrong
 Managers are targets for criticism
 Mistakes of managers can be more costly
 Managers’ decisions affect many workers