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
SLIDE 1
1-1 Satisfying Needs and Wants
Goals
1. Explain
the difference between needs
and wants
2. Distinguish
3. Describe
between goods and services
the types of economic resources
Needs and Wants

Needs – Things that are required in order to live


Wants – Things that add comfort and pleasure to
your life.


Ex: Food, water, clean air, clothing, and shelter
Ex: Name brand jeans, cell phone
You are limited only by your imagination and by what businesses make
available for sale
Checkpoint #1
 What
is the main difference between a
need and a want?
 Needs are those things that are required to live, such
as food, clothing, and shelter. Wants are things that
add comfort and pleasure to our lives.
Goods and Services

Goods – Things that you can see and touch


Products you can purchase to meet your wants and needs
Services – Activities provided for satisfaction of
others that are consumed at the same time they
are purchased.

Businesses must provide services to you at the time you want to
consume them
Goods and Services for Business
Consumers

Some goods and services are unique for businesses
and consumer use

Business needs (Steel, Plastic, Gasoline, and
Computers) to operate.


Electricity, security, accountants
Businesses provide goods and services that meet
business and consumer needs and wants.
The U.S. Economy

The U.S. is the largest producer of goods and
services, and largest consumers in the world,


More then (2) China and (3) Japan combined
The shift from an economy based on agriculture
to an industrialized economy resulted in higher
incomes and more choices of products and
services for consumers.

More money to spend and more ways to spend it.
The U.S. Economy (Cont)

More spending = More jobs and a higher standard
of living

Challenges:
 Buy
things may not need
 Preserving

natural resources
Controlling Pollution
Checkpoint #2
 How
do people satisfy wants and
needs?
 People satisfy there wants and needs by purchasing
and consuming goods and services.
Economic Resources


Businesses produce good and services using
economic resources

Things available to be used to produce goods and services.

Factors of Production
3 Types of Resources
1.
Natural Resources
2.
Human Resources
3.
Capital Resources
Natural Resources


Raw materials supplied by nature

Oil, Minerals, Nutrients

Rivers, Lakes, Oceans

Air you breathe
Vegetable Soup

What natural resources are used in its production?
1.
Vegetables and Spices
2.
Water
3.
Aluminum
Human Resources

The people who produce goods and services


Vegetable Soup?
1.
Farmers (Livestock and Crop)
2.
Factory Workers / Managers
3.
Truck Drivers
Entrepreneur

The risk taker who uses resources to create a new product or
service
Capital Resources

The products and money used in the production of
goods and services


Ex: Buildings, equipment, supplies
People invest money into businesses so the
business will have the capital needed to operate.

Make money from the profits earned by the business

Selling their knowledge and skills in the form of labor
Checkpoint #3

What are the 3 types of economic resources? Give
an example of each type of resource.

Natural: water, land, trees, animals, and minerals

Human: Labor (people who work on the farms and in factories,
transport goods, provides services, or manage businesses.

Capital: Money, Land, Buildings, Tools, and Equipment.
1-2 Economic Choices
Goals:
1.
Describe the basic economic problem
2.
Explain the steps in the decision making
process
The Basic Economic Problem

The mismatch of unlimited wants and needs and
the limited economic resources

The basic economic problem results from Scarcity


Not having enough resources to satisfy every need.
Countries with few natural resources may not be
able to produce enough products and services
Choices

Everyone has to make financial decisions based on
scarcity.

Scarcity forces you to make choices


Decisions among the alternatives
Economic Decision-Making

The process of choosing which needs and wants will be satisfied
Trade Offs and Opportunity Costs

When you give up something to have something
else, you are making a Trade Off

Evaluate an alternative by considering the
Opportunity Cost of the decision

The value of the next best alternative that you were unable to
choose.

Benefit of choice should be greater than the benefit of next best
choice.
Checkpoint #4

What is Opportunity Cost?

The value of the next best alternative that you are unable to
choose. It is what you are willing to give up in order to have your
first choice.
The Decision-Making Process

Effective Decision-Making Process involves 6
Steps:
1.
Define the Problem
2.
Identify the choices
3.
Evaluate the advantages and disadvantages of each choice
4.
Choose the best alternative
5.
Act on your choice
6.
Review your decision
Define the Problem

For every decision the problem must be clearly
defined in order to make a decision that will lead
to a satisfying solution.
Identify the Choices
 It is common for you to face choices with many
alternatives
Evaluate the Advantages and
Disadvantages of Each Choice

Write down your choices and then list the
advantages and disadvantages of each
Choose the Best Alternative
 Select the best choice that you believe will be
the best for you at this particular time.
Act on Your Choice

Once you made you decision, do whatever you
have chosen
Review Your Decision
 On a Scale of 1 to 10 how would you rank you
decision in the terms of the level of satisfaction it
provided
Checkpoint #5

What are the 6 Steps in the Decision-Making
Process and explain them?
1.
Define the Problem
2.
Identify the choices
3.
Evaluate the advantages and disadvantages of each alternative
4.
Choose the best alternative
5.
Act on your choice
6.
Review your decision
1-3 Economic Systems
Goals:
1.
Identify the 3 economic questions
2.
Differentiate among the main types of
economic systems
3.
Describe the economic system of the
United States
The Three Economic Questions

In order to determine how available resources will
be used to meet the needs and wants, each
country must answer 3 economic questions:
1.
What goods and services will be produced?
2.
How will the goods and services be produced?
3.
What needs and wants will be satisfied with the goods and
services produced?
What to Produce?

The resources of a country are very important in
determining what goods can be produced.

Just as countries differ in the amount of
resources, also differ to be important needs and
wants
How to Produce?

Countries must decide the best way to use their
resources to produce what is needed.


The U.S. economy labor needs
Each country decides on how to use it resources
to produce the goods and service it needs

Unskilled or skilled labor

Advanced or simple technology

Own resources or those it obtains from other countries
What Needs and Wants to Satisfy?

Decision makers must determine what needs and
wants are the most critical when deciding what to
produce


Capital goods or Consumer goods
In the U.S. many decisions are left for the
individual consumer

Depends on how much money you have and decide how you use it
or save it
Checkpoint #6
 What
are the 3 economic questions?
1.
What goods and services will be produced?
2.
How will the goods and services be produced?
3.
What needs and wants will be satisfied with
the goods and services?
Types of Economic Systems


A method a country uses to answer the 3
Economic Questions
3 Main Types of Economic Systems
1.
Command Economy
2.
Market Economy
3.
Traditional Economy
4.
Mixed Economy
Command Economy

The resources are owed and controlled by the
government

Government officials decide what and how goods are produced and
how they will be distributed and consumed

How much of the resources will be used to produce goods and
services
Personal economic choices are limited in a
command economy
 Communism

Market Economy

The resources are owned and controlled by the
people of the country

The 3 economic questions are answered by
individuals through buying and selling of goods
and services in the Market Place.

Anywhere that goods and services exchange hands

Ex: Supermarket, Internet, Business Office, Flea Market
Traditional Economy

Goods and Services are produced the way it
always been done.

Used in countries that are less developed and not yet participating
in the global economy.

Three economic questions are still established by
their traditions.

Meets the basic needs of the people.
Mixed Economies

Combines elements of the command and market
economies
 Most
nations of the world operate a mixed economy

As many countries with traditional economies
develop, they often adopt mixed Economies

Government makes many of the decisions on how
resources are used.
Checkpoint #7

What are the main differences among the three
economic systems?
 The
main differences between the economic systems
are found in the ways in which the 3 economic
questions are answered.
The U.S. Economic System

What is the Economic System of the United
States?
 Market

Another name for the U.S. Economic System is
Capitalism.

Refers to the private ownership of economic resources by
individuals, rather than by the government.
The U.S. Economic System

The economic freedom lends itself to other names
often associated with the U.S. Economy.
 Free

Enterprise or Private Enterprise
The U.S. economic system is based on four
important principles
1.
Private Property
2.
Freedom of Choice
3.
Profit
4.
Competition
Private Property

You can own, use, or dispose of things of value.
Freedom of Choice
 You can make economic decisions independently
and most accept the consequences of those
decisions.
Profit

The money left from sales after all costs of
operating a business have been paid.
Competition
 The rivalry among businesses to sell their goods
and services
Checkpoint #8

Name the four principles of which the U.S.
Economic System is based?
1.
Property
2.
Freedom of Choice
3.
Profit
4.
Competition
1-4 Supply & Demand
Goals:
1.
Describe supply and demand orally and
with graphs
2.
Discuss how supply and demand affect
prices of product and services
Participating in a
Market Economy


Buying decisions are made by consumers –
including individuals, businesses, and government

A person who buys and uses goods and services

Decide what to buy, where to buy, from whom to buy, and what
price willing to pay
Successful producers must pay close attention to
the needs and experiences of consumers

Individuals and organizations that determine what products and
services will be available for sale.
Consumers Set Demand

When consumers make decisions about what they
will purchase, they determine the DEMAND for
goods and services.


The quantity of a good or service that consumers are willing and
able to buy.
A business depends on demand for their product
or service in order to make a profit.
Producers Establish Supply

Understanding consumer demand helps businesses
to determine what types and quantities of
products to SUPPLY

The quantity of a good or service that businesses are willing and
able to provide.
A Graphic View of Demand and Supply

Demand Curve – Illustrates the relationship
between the price of a product or service and the
quantity demanded by consumers

Supply Curve – Illustrates the relationship
between the price of a product and the quantity
businesses are willing to supply
A Graphic View of Demand and Supply
Checkpoint #9

How does the price of a product affect demand
and supply?
 As
prices decrease, the number of consumers willing
and able to purchase the product and the quantity they
are willing to buy (demand) will increase.
 As
prices increase, businesses will be willing to supply
larger quantities of the product.
Determining Price

Prices are affected by the relationship between
supply and demand, plus other factors.
 Factors
Influencing Demand
 Factors
Influencing Supply
 Competitors

Market Price

The point where supply and demand are equal.
Checkpoint #10

How is Market Price for a product determined?
 Supply,
demand, and competition determine the
market price for a product or service.
 The
market price is the point at which supply and
demand are equal.