Economic Resources and Systems

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Chapter

2 Economic Resources and Systems pp. 18-33

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Learning Objectives After completing this chapter, you’ll be able to: 1. Define scarcity.

2. List the four factors of production.

continued

Slide 2 of 77 Introduction to Business, Economic Resources and Systems

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Learning Objectives After completing this chapter, you’ll be able to: 3. Identify the differences between market and command economies.

4. Explain why most countries prefer a mixed economy.

Introduction to Business, Economic Resources and Systems Slide 3 of 77

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Why It’s Important

Understanding economic resources and economic systems is essential to lessening economic problems.

Introduction to Business, Economic Resources and Systems Slide 4 of 77

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Key Words scarcity factors of production natural resources human resources capital resources entrepreneurial resources economics

Introduction to Business, Economic Resources and Systems

continued

Slide 5 of 77

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Key Words market economy demand supply equilibrium price command economy mixed economy

Introduction to Business, Economic Resources and Systems Slide 6 of 77

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Factors of Production

A shortage of resources is called

scarcity

. A basic economic problem for any society is how to manage its resources. Introduction to Business, Economic Resources and Systems Slide 7 of 77

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Factors of Production

To meet the wants and needs of its people, a society must produce goods and services. The means to produce them are called economic resources, or

factors of production

. Introduction to Business, Economic Resources and Systems Slide 8 of 77

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Figure 2.1

YOUR ECONOMIC REALITY AT A GLANCE The average American spends $7 a day on food. People spend less than half of that money on home-cooked meals. Recreate the table below. Insert a check mark in the appropriate square based on your eating experience in one week.

How do your choices influence your economic situation?

Introduction to Business, Economic Resources and Systems Slide 9 of 77

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Natural Resources

The raw materials found in nature are called

natural resources

. Natural resources become factors of production when we use them to produce goods. Introduction to Business, Economic Resources and Systems Slide 10 of 77

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Natural Resources

The economy of many countries is based on their natural resources. Introduction to Business, Economic Resources and Systems Slide 11 of 77

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Natural Resources

Some resources, like wheat and cattle, are

renewable

. They can be reproduced.

Other resources are limited, or

nonrenewable

, like coal, iron, and oil. Introduction to Business, Economic Resources and Systems Slide 12 of 77

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Natural Resources

The amount of natural resources available to a society has a direct effect on its economy. Introduction to Business, Economic Resources and Systems Slide 13 of 77

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Human Resources

The knowledge, efforts, and skills people bring to their work are called

human resources

, or labor. Introduction to Business, Economic Resources and Systems Slide 14 of 77

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Human Resources

Labor can be skilled or unskilled, physical or intellectual. One of the biggest problems facing many nations today is not a shortage of labor but a shortage of skilled labor. Introduction to Business, Economic Resources and Systems Slide 15 of 77

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Capital Resources Capital resources

are the things used to produce goods and services, like buildings, materials, and equipment. Introduction to Business, Economic Resources and Systems Slide 16 of 77

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Capital Resources

As the wants and needs of people change, so do the needs for capital resources. Introduction to Business, Economic Resources and Systems Slide 17 of 77

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Entrepreneurial Resources

Meeting the changing wants and needs of people requires

entrepreneurial resources

. Introduction to Business, Economic Resources and Systems Slide 18 of 77

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Entrepreneurial Resources

Entrepreneurs improve on ways to use resources, or create and produce new ones. A key to dealing with scarcity is to develop new resources and technologies. Introduction to Business, Economic Resources and Systems Slide 19 of 77

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Fast Review

1. What is scarcity?

2. What are the four factors of production?

Introduction to Business, Economic Resources and Systems

continued

Slide 20 of 77

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Fast Review

3. What are some examples of capital resources?

Introduction to Business, Economic Resources and Systems Slide 21 of 77

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Making Decisions About Production

No society has enough productive resources available to produce everything people want. Every society must, therefore, make choices. Introduction to Business, Economic Resources and Systems Slide 22 of 77

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Basic Economic Questions

Rules and regulations determine choices. Introduction to Business, Economic Resources and Systems Slide 23 of 77

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Basic Economic Questions

A society makes economic choices by answering three economic questions: • What should be produced?

• How should it be produced?

• Who should share in what is produced?

Introduction to Business, Economic Resources and Systems Slide 24 of 77

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What Should Be Produced?

Deciding to use a resource for one purpose means giving up the opportunity to use it for something else. Introduction to Business, Economic Resources and Systems Slide 25 of 77

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How Should It Be Produced?

When a society decides what to produce, it must also address other types of questions, such as what methods will be used, how many people will work on the production, and what will be the quality of the items produced? Introduction to Business, Economic Resources and Systems Slide 26 of 77

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How Should It Be Produced?

The answers to these questions depend on two factors. One factor depends on how goods are to be produced.

Another important factor is the quantity of available resources.

Introduction to Business, Economic Resources and Systems Slide 27 of 77

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Who Should Share in What Is Produced?

This question focuses on the concept that people can’t get everything that they want because society doesn’t have enough resources. Introduction to Business, Economic Resources and Systems Slide 28 of 77

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Who Should Share in What Is Produced?

In most societies, people can have as many goods and services as they can afford to buy. Introduction to Business, Economic Resources and Systems Slide 29 of 77

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Who Should Share in What Is Produced?

The question arises as to how a society determines the income earned by each individual in that society? Introduction to Business, Economic Resources and Systems Slide 30 of 77

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Blood Is Thicker Than Oil Occidental Petroleum Corp. is exploring for oil in Columbia. However, the U’wa people oppose oil exploration on the land they have lived on for thousands of years. For them, oil is the “blood of Mother Earth.” continued

Introduction to Business, Economic Resources and Systems Slide 31 of 77

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Blood Is Thicker Than Oil The problem is more complex because the Columbian government supports the oil production, which will bring development to the country.

Introduction to Business, Economic Resources and Systems

continued

Slide 32 of 77

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Analyze Who has the right to the land —the U’wa people, or the Columbian government?

Introduction to Business, Economic Resources and Systems Slide 33 of 77

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Fast Review

1. When a society chooses to use a resource for one purpose and gives up the opportunity to use it for some other purpose, what cost is involved?

continued

Introduction to Business, Economic Resources and Systems Slide 34 of 77

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Fast Review

2. What happens to production methods when a country discovers new ways to combine economic resources?

Introduction to Business, Economic Resources and Systems

continued

Slide 35 of 77

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Fast Review

3. In most countries, what determines how many goods and services a person can buy?

Introduction to Business, Economic Resources and Systems Slide 36 of 77

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Types of Economic Systems Economics

studies how society chooses to use resources to produce and distribute goods and services for people’s consumption. Introduction to Business, Economic Resources and Systems Slide 37 of 77

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Types of Economic Systems

To use its limited resources effectively, every nation needs an economic system. Introduction to Business, Economic Resources and Systems Slide 38 of 77

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Types of Economic Systems

The primary goal of an economic system is to provide people with a minimum standard of living, or quality of life. Introduction to Business, Economic Resources and Systems Slide 39 of 77

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Types of Economic Systems

The two basic and opposing economic systems that have been developed are:

• •

Market economy Command economy Introduction to Business, Economic Resources and Systems Slide 40 of 77

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Market Economy

In a

market economy

economic decisions are made in the marketplace according to the laws of supply and demand. Introduction to Business, Economic Resources and Systems Slide 41 of 77

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Market Economy The Market and Prices Price

is the amount of money given or asked for when goods and services are bought or sold. Introduction to Business, Economic Resources and Systems Slide 42 of 77

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Market Economy The Market and Prices Demand

is the amount or quantity of goods and services that consumers are willing to buy at various prices. Introduction to Business, Economic Resources and Systems Slide 43 of 77

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Market Economy The Market and Prices

The higher the price, the fewer consumers will buy an item. The lower the price, the more consumers will buy an item. Introduction to Business, Economic Resources and Systems Slide 44 of 77

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Market Economy The Market and Prices Supply

is the amount of goods and services that producers will provide at various prices. Introduction to Business, Economic Resources and Systems Slide 45 of 77

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Market Economy The Market and Prices

Demand and supply work together. When the quantity demanded and the quantity supplied meet, the price is called the

equilibrium price

. Introduction to Business, Economic Resources and Systems Slide 46 of 77

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Figure 2.2

VISUALIZING DEMAND AND SUPPLY How many CDs will be demanded at $16 a piece?

How many CDs will be supplied at $18 a piece?

Introduction to Business, Economic Resources and Systems

Remember these two points: (1) The demand curve always falls left to right on a graph, and (2) the supply curve always rises from left to right on the graph.

Slide 47 of 77

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Market Economy The Market and Prices

A market economy is also called

capitalism

, or private enterprise. In a capitalist system, resources are privately owned. Introduction to Business, Economic Resources and Systems Slide 48 of 77

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Market Economy The Market and Prices

In a capitalist system, the primary role of government is to support the marketplace by removing obstacles such as trade barriers. Introduction to Business, Economic Resources and Systems Slide 49 of 77

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Market Economy The Market’s Motivations

A market economy offers incentives, such as competition and the profit motive, to produce more. Introduction to Business, Economic Resources and Systems Slide 50 of 77

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Market Economy The Market’s Motivations

The constant demand for new goods and services encourages entrepreneurship. Introduction to Business, Economic Resources and Systems Slide 51 of 77

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Market Economy The Market’s Motivations

The problem with a market economy is that owners and producers reap the most rewards. Introduction to Business, Economic Resources and Systems Slide 52 of 77

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Market Economy The Market’s Motivations

Another problem with a market economy is that unskilled workers and older adults are often unable to afford basic needs such as health care. Introduction to Business, Economic Resources and Systems Slide 53 of 77

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Market Economy The Market’s Motivations

Another problem with a market economy is that a small number of large companies can join forces to control the supply of products and manipulate prices. Introduction to Business, Economic Resources and Systems Slide 54 of 77

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Market Economy The Market’s Motivations

The profit motive can become an end in itself rather than a means to improve the good for all.

Introduction to Business, Economic Resources and Systems Slide 55 of 77

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Command Economy

In a

command economy

a central authority makes the key economic decisions. A command economy is also called a planned or managed economy. Introduction to Business, Economic Resources and Systems Slide 56 of 77

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Command Economy

There are two types of command economies. In a strong command economy, such as

communism

, the state makes all the economic decisions. Introduction to Business, Economic Resources and Systems Slide 57 of 77

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Command Economy

In a moderate command economy, also called

socialism

, there is some form of private enterprise. Introduction to Business, Economic Resources and Systems Slide 58 of 77

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Command Economy

The primary advantage of a command economy is that it guarantees everyone an equal standard of living. Introduction to Business, Economic Resources and Systems Slide 59 of 77

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Command Economy

There are some disadvantages to a command economy. Since the state provides all goods and services in a strong command economy, there is little choice of what to buy. Introduction to Business, Economic Resources and Systems Slide 60 of 77

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Command Economy

Another disadvantage to the command economy is that there is no incentive for entrepreneurship when you can’t run your own business.

Introduction to Business, Economic Resources and Systems Slide 61 of 77

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Mixed Economy

Most nations have a

mixed economy

, a combination of a market and command economy. The state takes care of people’s needs while the marketplace takes care of people’s wants. Introduction to Business, Economic Resources and Systems Slide 62 of 77

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MARKET ECONOMY Economic decisions are made in the marketplace according to the laws of supply and demand.

MIXED ECONOMY Combination market and command economy.

What should be produced?

How should it be produced?

Who should share in what is produced?

COMMAND ECONOMY Government makes all key economic decisions.

Introduction to Business, Economic Resources and Systems Slide 63 of 77

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Fast Review

1. What is an economic system?

2. What is the difference between a market economy and a command economy?

Introduction to Business, Economic Resources and Systems

continued

Slide 64 of 77

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Fast Review

3. What are the advantages and disadvantages of a command economy and a market economy?

Introduction to Business, Economic Resources and Systems Slide 65 of 77

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What are some examples of renewable and nonrenewable resources?

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Slide 66 of 77

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Some stoves use corn as a heating fuel. Based upon the cost savings, do you think the price of corn is high or low?

continued

Introduction to Business, Economic Resources and Systems Slide 67 of 77

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Why do you think other countries are interested in buying corn burning appliances?

Introduction to Business, Economic Resources and Systems

continued

Slide 68 of 77

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In a command economy, how might a limit on the availability of corn affect the people?

Introduction to Business, Economic Resources and Systems Slide 69 of 77

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Business Building Blocks

Interpreting Line Graphs

Graphs are a quick and useful way to visually communicate information.

Line graphs often show change over a period of time.

continued

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Business Building Blocks

Interpreting Line Graphs

The left side of a graph is the

vertical axis

.

The bottom of the graph is the

horizontal axis

.

continued

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Business Building Blocks

Interpreting Line Graphs

Both axes display numbers and a label indicating what the numbers represent.

Dots on the graph show numerical information.

continued

Slide 72 of 77 Introduction to Business, Economic Resources and Systems

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Business Building Blocks

Interpreting Line Graphs

When the dots on the graph are connected, they form a line whose location and direction reveals information about change through time.

continued

Slide 73 of 77 Introduction to Business, Economic Resources and Systems

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Business Building Blocks

How to Interpret a Line Graph

• • • Read the title of the graph Read the label on each axis Understand the numbers on each axis, including the interval used

continued

Slide 74 of 77 Introduction to Business, Economic Resources and Systems

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Business Building Blocks

How to Interpret a Line Graph

• Examine where the dots are located on the graph • Determine what the line(s) or curve(s) symbolize

continued

Slide 75 of 77 Introduction to Business, Economic Resources and Systems

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Business Building Blocks

How to Interpret a Line Graph

• Compare the line(s) on the graph to both axes to determine the graph’s meaning Introduction to Business, Economic Resources and Systems Slide 76 of 77

End of Chapter

2

Economic Resources and Systems

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