Chapter 2 Economic Resources and Systems
Section 2.1 Economic Resources
Making Economic Decisions
Because of scarcity (i.e. the lack of something, not enough) all businesses must
make decisions. Scarcity is the result of limited resources vs. unlimited wants and
needs.
Reading Check p.23
Factors of Production: all the economic resources needed to produce a good or
service. There are four factors of production:
Natural Resources
Labor/Human Resources
Capital Resources
Entrepreneurial Resources
Natural Resources: are raw materials that come from nature such as crops, ores,
animals, fish, water, etc.
Some natural resources are renewable such as crops and animals while others are
non-renewable such as oil, coal, etc.
Use the one hundred year rule: If something can be replenished within one
hundred years it should be considered renewable. If it takes more than one
hundred years than it should be considered non-renewable
The amount of natural resources a country has directly affects a nations economy.
Reading Check p.24
Labor/Human Resources: people used to make goods or services.
Labor can be skilled or unskilled, physical or intellectual.
Capital Resources: the things used to produce goods or services such as buildings,
materials and equipment and can also be referred to as capital goods.
Reading Check p.25
Entrepreneurial Resources: the ideas that business people come up with to
provide goods or services (i.e. the assembly line, the light-bulb, computers, etc.)
After You Read p.26
Section 2.2 Economic Systems
Basic Economic Questions:
What to produce?
How should it be produced? (i.e. what resources will be used?)
Who should share in what is produced? (i.e. who gets it?)
Answering these questions results in opportunity costs.
Opportunity Costs are what you give up in order to make the choices you make.
(i.e. using $10 to go to the movies results in various opportunity costs that you could
have done with that money such as save it.)
Different Types of Economies:
An Economic System is the method a society uses to distribute resources. The type
of economic system will determine how the above questions are answered.
Market Economies: economic system in which economic decisions are made in the
marketplace and may also be called a private enterprise system (resources are
owned privately) or free enterprise system, or capitalism. In a market economy,
individuals are responsible for being informed and making careful decisions.
Reading Check p.29
Price: the amount of money given or asked for when goods or services are bought
or sold.
Supply: the amount of goods and services that producers will provide at various
prices. Once again profit is the goal. The higher the price the producer can get will
make them willing to provide more of the good or service and the lower the price
the less they will produce. This is the “LAW OF SUPPLY”
Demand: the amount of goods and services people are willing and able to buy. The
higher the price the less consumers will buy. The lower the price the more they will
buy. This is the “LAW OF DEMAND”
Equilibrium is the place where supply and demand are equal (see fig 2.1 p.30)
Demand and Supply are both affected by price.
Command Economies: economic system in which a central authority (i.e. the
government) makes the key economic decisions. The gov’t also owns and controls
most of the resources. In this type of economy businesses and consumers have little
to no choice in what to produce or buy. Communism and Socialism are two forms of
Command Economies.
Mixed Economies: In reality, few nations have a pure market economy or pure
command economy. Most countries have a mixture of the two where private
ownership of property and individual decision making are combined with
government intervention and regulations.
What type of Economy does the United States of America have?
After You Read p.31