Economic Resources
Economic Systems
-nations have different economic systems
Four Basic Questions
-every nation’s economic system must
answer four basic questions which are
answered according to the view of how to
best satisfy the needs and wants of its
people
What goods and services and how much
of each should be produced?
-businesses determine the most efficient
mix of the factors of production
-for each good and service produced,
there is always a trade-off
-prices affect decisions about how much
to produce
2. Who should produce them?
-the type of economic system
determine who will produce
-choice of careers
1.
How should they be produced?
-decision of what available resources
should be combined to get the job done
at the least cost
4. Who should share in their use?
-distribution of income among all
members of an economic system
3.
Types of Economic Systems
-society’s values and goals determine the
type of system
-economic systems described as pure or
ideal types (economic models); not
examples of real world
Traditional System
Answers the four basic questions
according to tradition
-things are done as they have always
been
 Decisions based on customs, beliefs
(often religious), and handed down from
generation to generation
Examples: very limited parts of Asia,
Africa, Latin America and the Middle East
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Command or Controlled System
Individual has little influence over the
answers of the four basic questions
Government makes all decisions on the
factors of production
-choose how resources will be used at
each stage of production, decide, how
goods and services will be distributed,
decide who will do what (guides certain
people into certain jobs)
Market or Capitalist System
-opposite of command system
-government does not intervene
-factors of production are owned by
individuals and they decide the answers
to the four questions
-economic decisions are made through free
interaction of individuals looking out for
their own best interest
-buyers and sellers choose with whom to do
business with (may be neighborhood to
worldwide)
3.
Mixed Economic System
-contains characteristics of a command and
pure market economy
-almost all economic systems are mixed
-the mix will vary so that one system
leans more towards one type than
another
-the United States tends to be more toward
the market system
4.
Producing goods and services
 The output or amount produced is in the
form of goods (tangible products like
computers and fingernail polish) and
services (work that is performed by one
for another like a manicure or a haircut)
Factors of Production
 Resources necessary to produce goods
and services
1. Natural resources
 The gifts of nature that are used to
make products
 Before a product is transformed into
something else
Examples: fertile soil, rainfall, minerals,
forests, etc.
2.
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Labor
Nation’s labor force or human resource
Refers to both physical and mental
efforts that people contribute to the
production of goods and services
A resource that can vary in size
depending on factors such as population
growth, immigration, education, disease,
and war
Examples: teachers, construction
contractors, etc.
3.
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T
Capital
Also called capital goods
Anything used to make other products
Capital goods are unique in the fact that
they are a result of production (someone
has to actually make it; it can not be
found in nature)
Examples: tools, machinery, buildings
Consumer goods satisfy wants directly
Examples: computers, cars, foods, etc.
Capital goods satisfy wants indirctly by
aproducing
relative
worthgoods
consumer
4.
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Entrepreneur
Individuals who start new businesses,
introduce new products, and improve
management techniques
Involves being innovative and taking
risks in order to profit
Often thought of as the driving force of
the American economy because they use
the factors of production to create new
products

The measure of economic success by the
amount of their income and their ability to
provide for themselves and their family
Gross Domestic Product
 Also called GDP
 The total value in dollars of all the final goods
and services produced in a country in a
single year
 A final good is the good that is sold to the
consumer; intermediate goods are the goods
that go into making the final good
 Example: final good- car intermediate
good- steel
The intermediate goods are not calculated
in the GDP- only the final goods and
services are calculated by economists
 If they counted both intermediate and
final goods, they would be double
counting or counting a good more than
once
 Secondhand sales are not counted as part
of GDP because no new production is
created: Example: the selling and
buying of a used car between two people
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Measuring GDP
 A monetary measure used to compare the
number of goods and services produced to get
the relative worth
 To compute GDP:
1. Multiply the number of items produced by the
average price of the item
2. Add the multiple items together
Example: 2,000 cars sold at average $35,000
5,000 trucks sold at average $55,000
3,500 SUVs sold at average $42,000
GDP: Cars $70,000,000 + Trucks $275,000,000
+ $147,000,000
GDP = $492,000,000
If the GDP is higher than in the previous year,
then the economy is expanding
 If the GDP is lower than the previous year,
then the economy is declining
 Economists use GDP figures to analyze
business cycle patterns
 GDP is an important measure of the standard
of living
-whenever GDP grows faster than the
population, there are more goods and
services, on average, for each of us to use
 GDP is a reasonable accurate and useful
measure of economic performance, but not a
measure of society’s overall well-being
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Quantity vs Quality
 GDP measures quantity not quality
 GDP does not accurately reflect
improvements in the quality of products
 Example: A car purchased today at
$45,000 is not the same as a car costing
the same amount 5 years ago- the car
purchased 5 years ago at the same cost
was probably better