Intro to Business, 7e
CHAPTER 1
Economic Decisions
and Systems
1-1
Satisfying Needs and Wants
1-2
Economic Choices
1-3
Economic Systems
1-4
Supply and Demand
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Intro to Business, 7e
1-1 Satisfying Needs
and Wants
OBJECTIVES
1. Explain the difference between needs and
wants.
2. Distinguish between goods and services.
3. Describe the types of economic resources.
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Intro to Business, 7e
Chapter 1
Key Terms
needs
wants
goods
services
economic resources
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Intro to Business, 7e
Chapter 1
NEEDS AND WANTS
Needs are essential
Wants add to the quality of life
Needs and wants are unlimited
At least in PA, needs are (for the most
part) not taxed. Wants tend to be taxed.
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Intro to Business, 7e
With your partner, make a list of Chapter 1
G&S that are wants but are “sold”
to us as needs…
Ex: TV
.
.
.
.
.
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Intro to Business, 7e
Chapter 1
Needs and Wants have
changed over the years
 In small groups, prepare a list of five needs that
you agree would be similar to the needs of your
parents when they were your age.
 Then list five needs of yours that you agree
would likely be different from your parents when
they were your age.
 Be prepared to justify why the items on your list
are needs and not wants.
 Lists will be used at the end of the period.
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Intro to Business, 7e
Chapter 1
Checkpoint >>
What is the difference between a need and a want?
Answer
 Needs are those things required to live, such as food,
clothing, and shelter.
 Wants are things that add comfort and pleasure to our lives
such as television, music CDs, and movies.
 The service industry (largest industry) addresses more
wants than needs. How does this relate to unemployment
rates during an economic recession?
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Intro to Business, 7e
Chapter 1
Additional Needs
Clean air
Water
Good education
Employment
Safety
Transportation
Medical Care
Medication
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Intro to Business, 7e
Chapter 1
GOODS AND SERVICES
Goods and services for businesses and
consumers
 Both businesses and individuals are
consumers but have different goals
 Different quantities to purchase
 For use in business AND for resale
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Intro to Business, 7e
Chapter 1
GOODS AND SERVICES
(continued)
The U.S. economy
 U.S. is the largest producer of G&S in the
world,
 Americans are also the largest consumer
group in the world.
 Drawbacks:
 Produce more garbage per person per year.
 More debt through credit cards and loans.
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Intro to Business, 7e
Chapter 1
ECONOMIC RESOURCES~
the means through which G&S are produced
Natural Resources materials supplied by nature
Human Resources people who produce G&S
Capital Resources products and money used in the production of
G&S
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Intro to Business, 7e
Chapter 1
ECONOMIC RESOURCES
(continued)
Resources are limited ~ SCARCITY
 Individuals, businesses, and countries
compete for access and ownership.
 The more scarce, the higher the price
and the less that can be produced.
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Intro to Business, 7e
Chapter 1
Examples of each type of
resource:
Natural: water, land, trees, animals, and
minerals.
Human: labor (people who run farms and
factories, transport goods, provide services, or
manage businesses, even Entrepreneurs…)
Capital: money, land, buildings, tools, and
equipment.
 Venture Capital
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Intro to Business, 7e
Chapter 1
Reinforcement 1-1
Page 11
 1-4
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Intro to Business, 7e
1-2 Economic Choices
Goals
4. Understand the basic economic problem.
5. Explain the steps in the decision-making
process.
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Intro to Business, 7e
Chapter 1
Key Terms
scarcity
economic decision-making
tradeoff
opportunity cost
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Intro to Business, 7e
Chapter 1
THE BASIC ECONOMIC
PROBLEM… SOLVED?
SCARCITY! = basic economic problem
 We make CHOICES as people and as a
nation regarding our scarce economic
resources
Economic Decision Making Process
 Brainstorm effective AND ineffective decision makers. What
do you think makes them effective/ineffective? What do you
think they do or do not do?
Tradeoffs and opportunity costs…
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Intro to Business, 7e
Chapter 1
What is a tradeoff?
When you have to give something up to
have something else.
 Example: I want to go to the dance next
weekend, but the tradeoff will be that I will
not be able work my usual shift at my parttime job.
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Intro to Business, 7e
Chapter 1
What is opportunity cost?
Opportunity cost is the value of the next
best alternative that you don’t choose.
It is what you are willing to give up in
order to have your first choice.
• In the ‘dance’ example, the opp. cost
is the money that I will not earn if I
take off work to go to the dance.
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Intro to Business, 7e
Chapter 1
THE DECISION-MAKING
PROCESS
 Poor Business Decisions in our History
 How to avoid a bad decision…

http://blog.vistage.com/business-leadership/how-to-avoid-a-bad-decision-small-business-owners-can-help-themselves/
1. Define the problem.
2. Identify the choices.
3. Evaluate the advantages and disadvantages of each
choice.
4. Choose one.
5. Act on your choice.
6. Review your decision.
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Intro to Business, 7e
Chapter 1
1. Define the problem
Be specific!
 Class Example:
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Intro to Business, 7e
Chapter 1
2. Identify the choices
There are often MANY alternatives.
Consider each possibility!
Create an actual list of realistic
possibilities.
 Class Example:
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Intro to Business, 7e
Chapter 1
3. Evaluate the advantages and
disadvantages of each choice.
Weigh the PROs and CONs of each
possibility.
Write them down!
(This process works…For real!)
 Class Example:
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Intro to Business, 7e
Chapter 1
4. Choose one.
Realize that every choice has its
consequences and prepare yourself to
handle them.
Know and understand the tradeoffs
and opportunity costs associated with
your decision.
 Class Example:
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Intro to Business, 7e
Chapter 1
5. Act on your choice.
Timing is critical! When should you act
to maximize your results?
 Class Example:
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Intro to Business, 7e
Chapter 1
6. Review your decision.
Would you make the same choice
again?
What (if anything) would you do
differently?
This step should make future decisions
easier.
 Class Example:
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Intro to Business, 7e
Chapter 1
With your partner, complete the
following… (on the paper used for your Bell Ringer activity)
 You have just been given $10,000, with the
only stipulation that it MUST be spent on a
service or something tangible (cannot be
saved).
 Using just the first 4 steps of the 6-step
decision making process, decide what you
will do with the money.
 List each step separately and be thorough!
 In steps 2 and 3, consider a minimum of two
possible alternatives with pros and cons for each.
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Intro to Business, 7e
Chapter 1
Reinforcement
Page 15
 1-3 and
 Choose 4 or 5
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Intro to Business, 7e
1-3 Economic Systems
Goals
6. Identify the three economic questions.
7. Differentiate among the main types of
economic systems.
8. Describe the economic system of the United
States.
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Intro to Business, 7e
Chapter 1
Key Terms
economic system
command economy
market economy
traditional economy
mixed economy
capitalism
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Intro to Business, 7e
Chapter 1
THE THREE ECONOMIC
QUESTIONS
What to produce?
 Butter V. Guns Dilemma
How to produce?
 Skilled labor, technology, automation,
simple tools, hand-made, etc…
For whom to produce?
 Whose needs and wants to satisfy
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Intro to Business, 7e
Chapter 1
Economic System:
A nation’s plan for answering the 3
economic questions and for dealing
with the basic economic problem of
scarcity.
 3 main types of economic systems…
 Traditional
 Command
 Market (ofMixed)
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Intro to Business, 7e
Chapter 1
TRADITIONAL ECONOMY
Operate according to tradition and
custom
Developing area of Latin America, Asia,
Africa, and the Middle East
Traditions still passed down from
generation to generation
Consume their own products
Meets basic needs for shelter, food, and
clothing
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Intro to Business, 7e
Chapter 1
COMMAND ECONOMY
‘Centrally Planned’ economy
Resources are owned and controlled by
the government
Government answers the 3 economic
questions
Limited individual freedom
 Cuba, Libya, Iran, N. Korea, Myanmar
(Burma), Saudi Arabia, China, and Vietnam
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Intro to Business, 7e
Chapter 1
MARKET ECONOMY
Resources are owned and controlled by
the people of the country
3 Economic questions are answered by
individuals through buying and selling of
G&S
Consumers and businesses make
decisions based on their own selfinterest
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Intro to Business, 7e
Chapter 1
(MIXED ECONOMY)
Combines Market and Command
economy
 Why is government involvement necessary
in a Market economy?
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Intro to Business, 7e
Chapter 1
Market Vs Command Economy
Socialism
Capitalism
Donald
Trump,
Bill Gates,
etc…
Other
Wealthy
People
High
Low
Income
Income
Middle Mid-Low
Income Income
Equal
Piece of
the Pie
Equal
Piece of the
Pie
Equal
Piece of
the Pie
Gov’t
Control
Equal
Piece of
the Pie
© 2009 South-Western, Cengage Learning
Equal
Piece of the
Pie
Equal
Piece of
the Pie
Equal
Piece of
the Pie
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Intro to Business, 7e
Chapter 1
Checkpoint >>
What are the main differences among the three
economic systems?
Answer
 The main differences between the economic systems are
found in the ways in which the three economic questions are
answered.
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Intro to Business, 7e
Chapter 1
4 Characteristics/Principles of the
U.S. ECONOMIC SYSTEM
Private property
Freedom of choice
Profit ~ (Profit Motive)
Competition
Discuss with your partner an example of each
characteristic/principle in our economy.
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Intro to Business, 7e
Chapter 1
Reinforcement
Page 22
 1-3 and
 Choose 4 or 5
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Intro to Business, 7e
1-4 Supply and Demand
Goals
9. Describe supply and demand orally and with
graphs.
10. Discuss how supply and demand affect prices
of products and services.
M&M Activity
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Intro to Business, 7e
Chapter 1
Key Terms
consumer
producers
demand
supply
market price
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Intro to Business, 7e
Chapter 1
PARTICIPATING IN A
MARKET ECONOMY
Consumers set demand
Producers establish supply
A graphic view
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Intro to Business, 7e
Chapter 1
Car Wash Example
10
9
8
7
6
5
4
3
2
1
0
MARKET
PRICE
$0
$2
$4
$6
$8
$10
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$12
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Intro to Business, 7e
Chapter 1
DEMAND AND SUPPLY
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Intro to Business, 7e
Chapter 1
MARKET PRICE
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Intro to Business, 7e
Chapter 1
Checkpoint >>
How does the price of a product affect demand and supply?
Answer
 As prices decrease, the number of consumers willing and able
to purchase the product (demand) will increase.
 As prices increase, businesses will be willing to supply larger
quantities of the product.
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Intro to Business, 7e
Chapter 1
DETERMINING PRICE
Factors influencing demand
 Weather, climate, timing
 Competition, substitutes
Factors influencing supply
 Weather, climate, natural disasters
 Competitors
Determining market price
 Supply, Demand, and Competition
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Intro to Business, 7e
Chapter 1
Reinforcement 1-4
Page 26 (1-3 and 4 or 5)
&
CHAPTER 1 REVIEW
Pages 28-29 (1-30)
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