Unit 1
• Needs are essential
• Everyone Needs
– food & water
– Clean air
– Shelter
• In today's society other needs include:
– Good education
– Employment
– Safety
• Wants add to the quality of life
• Most products purchased do more than meet
your needs, they make your life easier and
more comfortable.
• Our country, economic status, lifestyle, and
jobs determine whether something is a need
or a want.
• Goods satisfy your wants and needs for
material things that you can see or touch.
• Services also satisfy wants and needs but
must be provided to you at the time you
want to consume them.
• Consumers decided which products and
services to purchase and where to purchase
• Businesses decide what products and
services to produce.
• ________ is the motivation of business
• Having unlimited wants and needs but
limited resources is known as the basic
economic problem.
• The basic economic problem results from
• The means by which goods and services are
produced are known as economic resources.
• Economic resources are also known as factors
of production.
• There are 3 kinds of economic resources:
– Natural Resources
– Human Resources
– Capital Resources
• Natural Resources
– Raw material supplied by nature.
• Human Resources
– The people who produce goods and services
Owners, managers, employees of a business
Factory Workers
• Capital Resources
– Products and money used in the production of
goods and services
• All nations of the world face the basic economic
problem. Each country must decide how the
available resources will be used to meet the wants
and needs of its people.
• All economies must answer 3 economic
1. What goods and services will be produced?
2. How will the goods and services be produced?
3. Which needs and wants will be satisfied with the
good and services produced?
• The decision making process helps consumers and
businesses to carefully calculate the opportunity cost
of decisions before actually making the decisions as
well as helping select the most satisfying
alternatives from a set of choices.
1. Define the Problem
2. Identify the Choices
3. Evaluate the advantages and disadvantages
of each choice
4. Make a decision
5. Act on your decision
6. Review your decision
• A nations plan for answering the 3 economic
questions is called its economic system
• The main types of economic systems in the
world today are
– Market Economy
– Command Economy
– Traditional Economy
– Mixed Economy
• An economy in which resources are owned
and controlled by the government.
• North Korea , Cuba
• Communism is a command economy
• An economy in which the resources are
owned and controlled by the people of the
• America, Germany, Canada, Hong Kong
• An economy in which goods and services are
produced the way they have always been
• Amish, Inclusive Native American
• Less developed countries which do not
participate in global trading generally have a
traditional economy.
• An economy that combines elements of
different economies
• Most economies are truly mixed economies
• Another name for the economic system in the United States is
capitalism which refers to the private ownership of resources
by individuals rather than by government.
• 4 principles U.S. economic system is based on are:
Right to own private property
Freedom of choice
Right to make a profit
Freedom of competition
• Understanding demand tells a business what
type and what quantity of products and
services to supply.
• Prices are affected by the relationship
between supply and demand.
• When demand is high the price will tend to go
• If there is a large supply price will tend to
remain low.
• Economic activities move in cycles.
• The movement of the economy from one
condition to another and back again is called
a business cycle which reflects the recurring
ups and downs of GDP.
• The 4 phases of the business cycle:
1. Prosperity
Most people are working, production and demand
are high, wages are good, GDP is growing
2. Recession
Demand decreases, unemployment rises, GDP growth
slows for 2 or more quarters
3. Depression
High unemployment, weak sales, business failures,
GDP falls rapidly
4. Recovery
Unemployment decreases, demand increases, GDP
slowly begins to rise.