PRINCIPLES OF BUSINESS,
FINANCE AND MARKETING
Units 1 & 2
Economic
Decisions and
Systems
UNIT 1.01
Satisfying Wants & Needs
Economic Choices
Economic Systems
Supply and Demand
SATISFYING WANTS AND NEEDS
Wants
 Not necessary for survival, but add comfort and
pleasure to our lives
 i.e. video games, designer clothes,
Needs
 Things that are necessary for survival
 i.e. food, clothing, shelter
Question: Is a car a want or a need?
BASIC ECONOMIC PROBLEM
Unlimited wants and needs, limited economic
resources
Scarcity
 Not having enough resources to satisfy every need
 Limited supplies of goods and services
 Someone’s going to go without
ECONOMIC CHOICES
Opportunity Cost
 Value of the next best alternative that you were not
able to chose
 Trade Off – what you make when you give something
up to have something else
Job
College
 College vs. Work
Annual
Year
1
2
3
4
5
6
7
10
15
20
25
$
$
$
$
$
$
$
$
$
$
$
Income/
Expense
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
Cumulative
$
$
$
$
$
$
$
$
$
$
40,000
60,000
80,000
100,000
120,000
140,000
200,000
300,000
400,000
500,000
Annual Income/
Expense
$
(20,000)
$
(20,000)
$
(20,000)
$
(20,000)
$
(20,000)
$
50,000
$
50,000
$
50,000
$
50,000
$
50,000
$
50,000
Cumulative
$
$
$
$
$
$
$
$
$
$
(40,000)
(60,000)
(80,000)
(100,000)
(50,000)
150,000
400,000
650,000
900,000
DECISION MAKING PROCESS
6 Steps
 Define the problem
 Identify the
alternatives
 List all pros and cons
 Choose among
alternatives
 Act on your choice
 Evaluate your decision
Example
 Can’t get to work
 Walk, bike, car, mooch
ride
 Lazy, embarrassing, cool
 CAR!
 Spend $20K on used car
 Can’t afford gas 
FACTORS THAT AFFECT DECISION-MAKING
Values
 Things that are important to you in life
Goals
 Things a person wants to accomplish
 i.e. college degree, starting a business
Freedom of Choice
– the freedom to make decisions
independently while accepting the consequences of
those decisions
ECONOMIC RESOURCES
Factors of Production
 Natural Resources:
raw materials (water, oil, trees)
 Renewable resources can be replaced
 Non-renewable resources cannot be replaced
 Human Resources : people who contribute physical or mental
energy
 Capital Resources :
tools, equipment, buildings, money, etc.
used to produce goods and services
ENTREPRENEURIAL RESOURCES
Initiative to combine natural, human and capital
resources to produce goods or services
 The 3 economic questions
1. What to produce?
2. How to produce?
3. What needs and wants to satisfy?
Who decides this determines a countries economic
system
ECONOMIC SYSTEMS
Traditionalism or Traditional Economy
 Do things the way they’ve always been done
 Pros: everyone has a role in the economy; economic life is
stable
 Cons: discourages new ideas; growth is limited
 Examples: parts of Africa, Latin American rain forest
ECONOMIC SYSTEMS
Communism or Command Economy
 Government owns/controls all resources
 Pros: everyone has a job and benefits; can make a dramatic
change in a short time on production of goods
 Cons: consumer goods rank low on priority list, few
consumer wants are met; lack of incentive to work hard
 Examples: North Korea, China, Cuba
ECONOMIC SYSTEMS
Capitalism or Market Economy
 People owns/controls all resources
 Pros: produce goods & services people want and need;
freedom of choice; income: input ratio; competition keeps
prices lower
 Cons: wealth of economy not equally distributed
 Examples: US, Japan, Canada, Great Britian
ECONOMIC SYSTEMS
Socialism or Mixed Economy
 Government owns major industries; allows for private
ownership of other businesses
 Pros: gov’t and private business work together;
insurance/social security benefits provided
 Cons: high tax rates; smaller spendable income; discourages
private business
 Examples: Sweden, France
THE US ECONOMIC SYSTEM
 Private Property
 Business or individual owns their own property, not
the government
 Freedom of Choice
 Freedom to make decisions independently while
accepting the consequences of those decisions
 Profit
 Amount of money available to a business after all
costs and expenses have been paid
 Competition
 Rivalry among businesses to sell their goods and
services
ECONOMIC DECISION-MAKING
The process of choosing which needs and wants will be satisfied
 Consumer – person who buys and uses goods & services
 Producer – business that makes the goods & services
 Demand
– the quantity of a good or service that consumers
are willing to buy
 The cheaper an item is, the more people will want/be able to afford it
(and visa versa)
 Supply
– the quantity of a good or service that businesses are
willing and able to provide
 The more expensive it is to produce, fewer businesses are willing to
make it (and visa versa)
Consumers set demand, producers establish supply
SUPPLY AND DEMAND
ACL
1200
1000
Price of 3-day Pass
800
600
400
Demand
200
0
100000
150000
200000
250000
300000
350000
Number of Passes Sold
400000
450000
500000
550000
SUPPLY AND DEMAND
ACL
1200
1000
Price of 3-day Pass
Supply
800
600
400
200
0
100000
150000
200000
250000
300000
350000
Number of Passes Sold
400000
450000
500000
550000
SUPPLY AND DEMAND
ACL
1200
1000
Price of 3-day Pass
Supply
800
Market
Price
600
400
200
0
100000
Demand
150000
200000
250000
300000
350000
Number of Passes Sold
400000
450000
500000
550000