Economics Scarcity A word economists use to describe the conflict between people’s desires and limited resources. The foundation for all economics. Economic System? The way in which a nation uses its resources to satisfy people’s needs and wants. Every economic system has to answer three basic questions: What will be produced? How will it be produced? For whom will it be produced? Economic Systems Market System – Citizens and businesses make most economic decisions. Government plays a limited role. Ex. U.S., Canada, Mexico, U.K. Command System – Government decides how many of which goods are produced and sets the price. Ex. Communist governments (North Korea and Cuba). Economic Systems cont. Traditional System – social roles and culture determine how goods and services are produced, what prices and individual incomes are, and which consumers are allowed to buy certain goods. Ex. Family’s status may determine whether they can own a tractor. Mixed System – Mixes elements of two systems. Ex. India has features of both market and traditional economies. Gross Domestic Product GDP – gross domestic product – tells the total value of the goods and services that a country produces each year. This is one way to measure a country’s economy. https://www.cia.gov/library/publications/theworld-factbook/rankorder/2004rank.html Four Factors of Production Natural Resources – raw materials such as land, water, forests, and minerals. Human Capital – workers with skills and experience to make goods or provide services. Capital Resources – machines, factories, and supplies Entrepreneurs – People who bring natural resources, labor resources, and capital resources together to produce goods and services. Factors of Production for a Music CD Entrepreneur (owner of recording studio and factory) Labor Resources (musicians, sound technicians, producer, factory manager, factory workers) Natural Resources (materials to manufacture CDs) Music CD Capital Resources (recording equipment, studio, factory and manufacturing equipment) Elements of a Market System Consumers – the people who use goods and services in a market economy. Supply – number of items offered at each price. Demand – number of items that people will buy at each price. Profit – money that remains after the costs of producing a product are paid. Competition – rivalry among businesses to sell goods to consumers and make the greatest profit. What happens if there is more demand than supply?? Too much demand without enough supply does what to prices of goods? Wii? i-Phone? What happens if there is more supply than demand??