Needs vs. Wants
• Need- Basic requirement for survival
• Want- Means of expressing a need
• Influenced by society
• Influenced by culture
• Change over time
• Many only satisfy for short period of time
• Depending on situation, can be labeled
reasonable or unreasonable
By examining this picture, what
needs or wants do these
people have? What would be
unreasonable wants?
http://www.hra.org/~library/greatdepression.html
The Fundamental Problem in Economics is
SCARCITY
• Scarcity- Resources are always limited compared with the
number and variety of wants people have
• Scarcity is not caused by a shortage of money.
What is scarce in each of these scenarios?
1. Brownouts in Los Angeles?
Electricity
2. People carpooling to work everyday?
Gasoline
3. Turning off the faucet while you brush your teeth? Water
4. Mandatory newspaper recycling
Trees
Scarcity is caused by a lack of productive resources or a lack
in one of the four factors of production.
The Four Factors of Production: Resources people have for
producing goods and services to satisfy their wants
1. Land-Natural Resources used to make the
final product
2. Capital-Machines, tools, money used to make
the final product
3. Labor-Workers used to make the final product
4. Entrepreneur-Risk taker
Four Factors of Production
Brainstorm: What does it take to produce a pair of blue jeans?
Land
Cotton
Dyes
Copper/metal
Labor
Sewers
Capital
Entrepreneur
Sewing machine
Levi
Scissors
Wrangler
Is water scarce today? Will water be scarce in the future?
What are some factors that are
leading to this scarcity?
•Population Growth
•Climate
•Food Production
•Land Use
•Dams
http://school.discovery.com/lessonplans/activities/watereverywhere/module.html
• Production is followed by Distribution
Want-Satisfaction Chain
• Distribution- Process by which goods and
services are made available to the people
who want them
• Distribution is followed by Consumption
• Consumption- Act of buying or using goods or
services
http://www.curriculumlink.org/econ/images/chain.3.jpg
Place in order using the Want-Satisfaction Chain
Place in order 1-8
__ Computer
__ George uses his computer
__ George wants a computer game
__ Computer shipped to store
__ Programmer, silicon, factory
__ George wants a computer
__ George buys a computer
__ Computer is assembled in factory
• Economy is all about making choices
• You have to make choices because of scarcity
• Which of your wants will you satisfy?
• You must examine the trade-offsAn exchange of one thing in return for
http://www.ruralwellbeing.org.uk/images/choice.gif
another, especially relinquishment of one
benefit or advantage for another regarded as
more desirable
For Example
Concert Tickets
New Computer
IPOD
Future Costs
Very Little
Yes
Very Little
Can Reuse
No
Yes
Yes
Parents
Approval
Maybe
Most Likely
Most Likely
• Opportunity Cost- Highest valued benefit
given up when a choice is made
• For example, if you chose the concert tickets
the opportunity cost would be the
2nd option that you would of chosen
• Businesses must make similar decisions
everyday
• For Example: Should Ford Motor Co spend
money on building a new car plant?
http://www.dailypress.com/extras/solutions/images/SOL120602.gif
1. What tradeoffs did
you make?
•
What tradeoffs did you make in order to balance the budget?
•
What is the opportunity cost of your budget recommendation?
•
Summarize the likely future consequences of your budget recommendation.
• There are 3 basic economic decisions:
• Which goods and services should be produced and in what amounts?
• How should these good and services be produced?
• Who will get the goods and services that are produced?
http://cache.consumerist.com/assets/resources/2006/08/question_marks.jpg
• Questions 1: Which goods and services should be produced and in what
amounts?
• Factors which influence this decision
• Factors of Production availability
• Natural Resources
• Capital
• Labor
• How much they (entrepreneurs) think they can sell
http://www.business2000.ie/images/case_studies/enterprise_ireland/diagram1.gif
• Question 2: How will land, labor, and capital be combined?
• Primary goal: Least costly
• Technology- Practical application of science to commerce or industry
http://online.wsj.com/public/resources/images/MK-AG360_TWOPLA_20060523223742.jpg
http://www.autolife.umd.umich.edu/Design/Gartman/D_Casestudy/P833_365_MachineShop2.gif
http://imagecache2.allposters.com/images/pic/FIP/MI-00394-C~Assembly-Line-Ford-Factory-Michigan-Posters.jpg
• Question 3: Who will get the goods and services that are available?
• Should they be divided equally?
• Should citizens determine who gets what
• How much government intervention is there to answer this question
• How much economic freedom is there?
• A lot of government intervention equals no economic freedom
• People would receive the same even some may work harder
• People have no say in the economy
• No government intervention equal a lot of economic freedom
• People compete freely and some may get more than others
• People have all the say in the economy
• There are 4 different types of economies
• Traditional Economy
• Command Economy
• Market Economy
• Mixed Economy
Traditional Economy:
• Basic economic decisions are made according to long established
patterns of behavior that are unlikely to change
• Customs and traditions are passed from elders to youth
• Family is the basic unit, however all members work together
to support society, not just family
• Works better with a smaller society
• Fewer resources are needed
• Fewer goods and services needed to be produced
• Very few left in today’s world
• Central and South America, Asia, Africa
Traditional Economy:
• Answering the basic questions:
• What and How much to produce?
• Answered by tradition and custom
• Very little freedom
• No Technology
• Very little change over a period of time
• Who gets what is produced?
• May be based on role in society
• May be divided according to number is family
• Who owns resources?
• Usually own their own land, tools and labor
Command Economy:
• Government or a central authority owns or controls the factor of production
and makes the basic economic decisions
• Egyptians, Medieval lords, USSR, Cuba and North Korea
• Answering the 3 basic questions:
• What and how much is produced
• Consumers have very little or no power in determining what or how
much gets produced
• Who gets what is produced
• Depends on the goals and values of central government
• Greedy Dictator-keeps more for himself OR
• Satisfy the citizens, regardless how much they produce
• Who owns resources?
• Central authority
Market Economy: System in which private individuals own the factors of
production and are free to make their own choices about production,
distribution and consumption
• Market Economy is also known as
• Free Enterprise System- No government control
• Capitalism- Capital is privately owned
• Market- Place or situation in which buyers and sellers agree to exchange
goods and services. This can be the local farmers market, Walmart
or Ebay
• No one person or group can run the market
• Competition plays an important role in the market economy
• Producers compete for the wants of people
• Labor competes for jobs
http://www.favoritethingz.com/images/UserImages/90279-ebay-logo.jpg
Market Economy:
• Answering the 3 Basic Questions:
• What and how much is produced?
• Driven by two factors
• Profit- Difference between the total cost of production
and the total revenues from buyers
• Invest- To use your money to help a business get started
or grow, with hope that the business will earn a
profit in which you can share
• Who gets what is produced?
• Those who earn high wages, own land or capital will get more
• Who owns the resources?
• Private people and companies
http://www.maced.org/images/dollar-sign.jpg
Modern day economy:
• Mixed Economy- Mixture of the 3 other systems
• Example: China
• Predominately a command economy but have introduced more
of a market economy as private industries are steadily growing
and competing for the wants of the Chinese population.
http://www.jzphotos.com/images/china/nanjing/nanjing04/china_mcdonalds_s.jpg
http://www.cnn.com/SPECIALS/1999/china.50/dispatches/09.24.americanization/coke.jpg
http://www.neatorama.com/images/2006-10/pepsi-china.jpg
United States Economy:
• NOT a 100% pure market economy
• Aspects on non-market economy
• Minimum wage
• US Government controls education, mail, military
• Several regulations on businesses
http://www.zeenews.com/pics/BUS/nyse-013107.jpg
http://images.amazon.com/images/P/B0002423YK.01._SCLZZZZZZZ_V1111746544_.jpg
Economic Spectrum- A way to compare economic systems, based
upon government involvement in a country’s economy
Command
Mixed
United States
Canada
Mexico
China
North Korea
Market
http://www.rainer-rilling.de/texte/Kartographien%20der%20Macht/LinkedDocuments/economic%20freedom%202006.jpg
Developing EconomyAny 3rd world nation that does not have
a self-sustaining economy or relies
on outside assistance from other nations
or organizations.
A developing economy will improve
their economy by:
1. Improving Infrastructure
A. Transportation
B. Communication
2. Improve Human Development
A. Education
B. Healthcare
3. Creating Jobs/Industries