CHAPTER
1
SLIDE 1
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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Principles of Business, 8e
1-1
Satisfying Needs
and Wants
Goal 1 Explain the difference between
needs and wants.
Goal 2 Distinguish between goods and
services.
Goal 3 Describe the types of economic
resources.
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SLIDE 2
CHAPTER
1
SLIDE 3
KEY TERMS
● needs
● wants
● goods
● services
● economic resources
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Principles of Business, 8e
CHAPTER
1
SLIDE 4
NEEDS AND WANTS
● Needs are essential to survival
● Wants add to the quality of life
● Needs and wants are unlimited
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Principles of Business, 8e
CHAPTER
1
SLIDE 5
Checkpoint 
● What is the difference between a need
and a want?
● 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.
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Principles of Business, 8e
CHAPTER
1
SLIDE 6
GOODS AND SERVICES
● Goods and services for businesses and
consumers
● Goods are things that you can see and touch.
They are the products you can purchase to
meet your wants and needs.
● Services are activities provided for the
satisfaction of others that are consumed at
the same time they are produced.
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Principles of Business, 8e
CHAPTER
1
SLIDE 7
GOODS AND SERVICES
● The U.S. economy
● The United States is the largest producer of
goods and services in the world. It produces
more than the next two largest producers,
China and Japan, combined.
● Increased consumer spending in a country
results in more jobs and a higher standard of
living.
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Principles of Business, 8e
CHAPTER
1
SLIDE 8
Checkpoint 
● How do people satisfy their wants and
needs?
● People satisfy their wants and needs by
purchasing and consuming goods and
services.
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Principles of Business, 8e
CHAPTER
1
SLIDE 9
ECONOMIC RESOURCES
● Economic resources are the things
available to be used to produce goods and
services. Economic resources are also
known as factors of production.
● The three types of economic resources
are natural resources, human resources,
and capital resources.
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Principles of Business, 8e
CHAPTER
1
SLIDE 10
ECONOMIC RESOURCES
● Natural resources
● Raw materials supplied by nature are natural
resources. The earth contains oil, minerals,
and the nutrients needed to grow crops and
forests and to feed animals. Rivers, lakes,
and oceans are the sources of both food and
water. The air you breathe comes from the
atmosphere that surrounds you.
● All products you consume begin with one or
more natural resources.
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Principles of Business, 8e
CHAPTER
1
SLIDE 11
ECONOMIC RESOURCES
● Human Resources
● The people who produce goods and services
are known as human resources. In the
example of the vegetable soup, many people
are needed to complete the work required to
produce that product.
● One type of human resource is an
entrepreneur. An entrepreneur is the risk
taker who uses resources to create a new
product or service.
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Principles of Business, 8e
CHAPTER
1
SLIDE 12
ECONOMIC RESOURCES
● Capital Resources
● People must have access to tools and
equipment in order to convert natural
resources into products. The products and
money used in the production of goods and
services are capital resources.
● Capital resources include buildings,
equipment, and supplies.
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Principles of Business, 8e
CHAPTER
ECONOMIC RESOURCES
Are Limited
1
SLIDE 13
● All economic resources have a limited
supply. Most resources can be used to
produce several different products and
services.
● If resources are used to produce one type
of product, they will not be available for the
production of something else.
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Principles of Business, 8e
CHAPTER
ECONOMIC RESOURCES
Are Limited
1
SLIDE 14
● Because there is a limited amount of natural
resources, there will also be a limit to the
amount of goods and services that can be
produced.
● Individuals, businesses, and even countries
compete for access to and ownership of
economic resources. Those resources that
are in very high demand or that have a
limited supply will command high prices
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Principles of Business, 8e
CHAPTER
1
SLIDE 15
Checkpoint 
● What are the three types of economic
resources? Give an example of each type.
● Natural: water, land, trees, animals, and minerals.
● Human: labor (people who run farms and factories,
transport goods, provide services, or manage
businesses).
● Capital: money, land, buildings, tools, and
equipment.
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Principles of Business, 8e
1-2
Economic Choices
Goal 1 Understand the basic economic
problem.
Goal 2 Explain the steps in the decisionmaking process.
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SLIDE 16
CHAPTER
1
SLIDE 17
KEY TERMS
● Scarcity - means not having enough
resources to satisfy every need.
● Scarcity affects everyone in every nation on
earth, but some people are more affected
than others.
● If everyone had unlimited resources there
would be no Scarcity
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Principles of Business, 8e
CHAPTER
1
SLIDE 18
KEY TERMS
● Economic decision-making
● The process of choosing which needs and
wants will be satisfied
● Everyone has to make financial decisions
based on scarcity. Individuals and families
must decide how to spread their income
among all of the things they want and need.
City, state, and national governments must
cope with the problem of providing the many
goods and services citizens demand using the
tax dollars they collect.
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Principles of Business, 8e
CHAPTER
1
SLIDE 19
KEY TERMS
● Trade-Off : is when you give up something
to have something else,
● You aren’t able to buy a pair of shoes
because you decided to spend your money on
a movie and pizza with your friends.
● The decision-making process helps you
select the best and most satisfying
alternative from among a set of choices.
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Principles of Business, 8e
CHAPTER
1
SLIDE 20
KEY TERMS
● opportunity cost - is the value of the next
best alternative that you were not able to
choose.
● In making a decision, part of your choice
will be what you are giving up by the
choice you make. The benefit you get from
your choice should be greater than the
benefit from the next-best choice.
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Principles of Business, 8e
CHAPTER
THE BASIC ECONOMIC
PROBLEM
1
SLIDE 21
● SCARCITY – Requires
● Choices
● Trade-offs and opportunity costs
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Principles of Business, 8e
CHAPTER
1
SLIDE 22
Checkpoint 
● 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.
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Principles of Business, 8e
CHAPTER
THE DECISION-MAKING
PROCESS
1
SLIDE 23
● You make better decisions when you use
a thoughtful process to evaluate your
alternatives rather than letting your
emotions lead you to a quick choice.
● An effective decision-making process
involves six steps.
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Principles of Business, 8e
CHAPTER
THE DECISION-MAKING
PROCESS
1
SLIDE 24
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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Principles of Business, 8e
CHAPTER
THE DECISION-MAKING
PROCESS
1
SLIDE 25
1. 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
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Principles of Business, 8e
CHAPTER
THE DECISION-MAKING
PROCESS
1
SLIDE 26
● 2. Identify the choices.
● It is common for you to face choices with
many alternatives.
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Principles of Business, 8e
CHAPTER
THE DECISION-MAKING
PROCESS
1
SLIDE 27
3. Evaluate the advantages and
disadvantages of each choice.
● You might find it helpful to write down your
choices and then list the advantages and
disadvantages of each
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Principles of Business, 8e
CHAPTER
THE DECISION-MAKING
PROCESS
1
SLIDE 28
4. Choose one.
● Select the choice that you believe will be the
best for you at this particular time.
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Principles of Business, 8e
CHAPTER
THE DECISION-MAKING
PROCESS
1
SLIDE 29
5. Act on your choice.
● Once you have made what you believe is the
best decision, do whatever you have chosen.
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Principles of Business, 8e
CHAPTER
THE DECISION-MAKING
PROCESS
1
SLIDE 30
6. Review your decision.
● After you have had a chance to experience
the results of your choice, it is important to
review your choice.
● On a scale of one to ten, how would you rank
your decision in terms of the level of
satisfaction it provided?
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Principles of Business, 8e
CHAPTER
1
SLIDE 31
Checkpoint 
● What are the six steps in the decision-making
process?
● Define the problem.
● Identify the choices.
● Evaluate advantages and disadvantages of each
alternative.
● Choose one.
● Act on your choice.
● Review your decision.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
1-3
Economic Systems
Goal 1 Identify the three economic
questions.
Goal 2 Differentiate among the main types
of economic systems.
Goal 3 Describe the economic system of
the United States.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 32
CHAPTER
1
SLIDE 33
KEY TERMS
● economic system
● command economy
● market economy – (demand)
● traditional economy
● mixed economy
● capitalism
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Principles of Business, 8e
CHAPTER
1
SLIDE 34
Economic System
● An economic system is the method a
country uses to answer the three
economic questions.
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Principles of Business, 8e
CHAPTER
THE THREE ECONOMIC
QUESTIONS
1
SLIDE 35
● What to produce?
● How to produce?
● What needs and wants to satisfy?
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Principles of Business, 8e
CHAPTER
1
SLIDE 36
WHAT to PRODUCE
● The resources of a country are very
important in determining what goods can
be produced.
● A country can decide to trade some of its
resources with other countries to obtain
those it needs.
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Principles of Business, 8e
CHAPTER
1
SLIDE 37
HOW to PRODUCE
● Countries must decide the best ways to
use their resources to produce what is
needed.
● As a country develops, tasks that were
traditionally performed using human labor,
such as farming and mining, are now
performed with more efficient tools and
equipment.
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Principles of Business, 8e
CHAPTER
WHAT NEEDS and WANTS to
SATISFY
1
SLIDE 38
● Because wants and needs are unlimited,
many will remain unmet no matter what
goods and services a country decides to
produce.
● Decision makers must determine which
needs and wants are the most critical
when deciding what to produce.
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Principles of Business, 8e
CHAPTER
Checkpoint 
1
SLIDE 39
● What are the three economic questions?
● What goods and services will be produced?
● How will the goods and services be
produced?
● What needs and wants will be satisfied with
the goods and services?
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Principles of Business, 8e
CHAPTER
TYPES OF ECONOMIC
SYSTEMS
1
SLIDE 40
● Command economy
● Market economy
● Traditional economy
● Mixed economies
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Principles of Business, 8e
Command Economy
CHAPTER
1
SLIDE 41
● resources are owned and controlled by the
government. (Communism, Socialism)
● Government officials decide what and how
goods are produced and how they will be
distributed and consumed (Closed Market).
They decide how much of the resources will be
used to produce goods and services for
consumers, such as food, schools, vehicles, and
houses. They also decide how much of the
resources will be used to produce goods for
business and government including machines,
equipment, and factories.
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Principles of Business, 8e
CHAPTER
Market Economy
1
SLIDE 42
● Resources are owned and controlled by the
people of the country.
● The three economic questions are answered
by individuals through buying and selling of
goods and services in the marketplace
(demand). The marketplace is anywhere that
goods and services exchange hands. This
includes a supermarket, the Internet, a
business office, or even a flea market.
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Principles of Business, 8e
CHAPTER
Traditional Economy
1
SLIDE 43
● goods and services are produced the way
it has always been done.
● The traditional economy is used in
countries that are less developed and are
not yet participating in the global economy.
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Principles of Business, 8e
CHAPTER
1
SLIDE 44
Mixed economies
● Combines elements of the command and
market economies.
● While the end of the twentieth century saw
a shift away from command economies
and toward market economies, various
degrees of government involvement in the
marketplace exist.
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Principles of Business, 8e
CHAPTER
1
SLIDE 45
Checkpoint 
● What are the main differences among
the three economic systems?
● The main differences among the economic
systems are found in the ways in which the
three economic questions are answered.
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Principles of Business, 8e
CHAPTER
THE U.S. ECONOMIC
SYSTEM – Market Economy
1
SLIDE 46
● Capitalism refers to the private ownership
of economic resources by individuals,
rather than by the government.
● Individual owners are free to decide what
to produce with the resources they own.
Individual consumers are also free to
decide how they want to use their money
to purchase products and services
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Principles of Business, 8e
CHAPTER
THE U.S. ECONOMIC SYSTEM
Market Economy cont.
1
SLIDE 47
● This economic freedom lends itself to
other names often associated with the
U.S. economy—free enterprise or private
enterprise along with capitalism and Open
Market.
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Principles of Business, 8e
CHAPTER
THE U.S. ECONOMIC
SYSTEM
1
SLIDE 48
● Private property
● Freedom of choice
● Profit
● Competition
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Principles of Business, 8e
CHAPTER
Private property
1
SLIDE 49
● The right of private property means you
can own, use, or dispose of things of
value. In the United States, you can own
anything you want and decide what you
want to do with it, as long as it does not
violate the law.
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Principles of Business, 8e
CHAPTER
Freedom of choice
1
SLIDE 50
● Freedom of choice means that you can
make economic decisions independently
and must accept the consequences of
those decisions.
● Business owners can decide where to
open a business, what to sell, and how to
operate the company.
● Consumers can decide where to shop,
what to buy, and what they want to spend.
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Principles of Business, 8e
CHAPTER
Profit - (Profit Motive)
1
SLIDE 51
● Businesses invest resources and take risks
for one primary reason - to earn a profit.
earning a profit is at the heart of the
private enterprise system.
● Profit is the money left from sales after all of
the costs of operating a business have been
paid.
● Because businesses are not guaranteed a
profit, investors may lose the money they
have put into the business.
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Principles of Business, 8e
CHAPTER
1
SLIDE 52
Competition
● The rivalry among businesses to sell their
goods and services is known as
Competition.
● Competition encourages businesses to
improve products, keep prices low, provide
effective customer service, and improve
business practices.
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Principles of Business, 8e
CHAPTER
1
SLIDE 53
Checkpoint 
● Name the four principles of the U.S.
economic system.
● Private property
● Freedom of choice
● Profit
● Competition
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Principles of Business, 8e
1-4
Supply and
Demand
Goal 1 Describe supply and demand orally
and with graphs.
Goal 2 Discuss how supply and demand
affect prices of products and
services.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 54
CHAPTER
1
SLIDE 55
KEY TERMS
● consumer
● producers
● demand
● supply
● market price
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Principles of Business, 8e
CHAPTER
1
SLIDE 56
Consumer
● A consumer is a person who buys and
uses goods and services.
● The individual buying decisions of
consumers have a tremendous influence
on a market economy.
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Principles of Business, 8e
CHAPTER
1
SLIDE 57
Producers
● Producers are individuals and
organizations that determine what
products and services will be available for
sale.
● Producers invest resources and take risks
in order to make a profit. (PROFIT
MOTIVE)
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Principles of Business, 8e
CHAPTER
1
SLIDE 58
Demand
● Demand is the quantity of a good or
service that consumers are willing and
able to buy.
● A business depends on demand for their
products and services in order to make a
profit.
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Principles of Business, 8e
CHAPTER
1
SLIDE 59
Supply
● Supply is the quantity of a good or service
that businesses are willing and able to
provide.
● If consumers want a popular product and
are willing to pay a price that allows a
business to make a profit,
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Principles of Business, 8e
CHAPTER
PARTICIPATING IN A
MARKET ECONOMY
1
SLIDE 60
● Consumers set demand
● Producers establish supply
● A graphic view
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Principles of Business, 8e
CHAPTER
1
SLIDE 61
DEMAND AND SUPPLY
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Principles of Business, 8e
CHAPTER
1
SLIDE 62
Law of Supply
● As prices increase, businesses will be willing to
supply larger quantities of the product.
● As prices Decrease, businesses will be willing to
supply smaller quantities of the product.
●P
Qs
●P
Qs
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Principles of Business, 8e
CHAPTER
1
SLIDE 63
Law of Demand
● As prices Decrease, Consumers will be willing to
Buy larger quantities of the product.
● As prices Increase, Consumers will be willing to
Buy smaller quantities of the product.
●P
Qd
●P
Qd
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Principles of Business, 8e
CHAPTER
1
SLIDE 64
Checkpoint 
● 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 (demand) will increase.
● As prices increase, businesses will be
willing to supply larger quantities of the
product.
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Principles of Business, 8e
CHAPTER
1
SLIDE 65
DETERMINING PRICE
● Factors influencing demand
● Factors influencing supply
● Determining market price
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Principles of Business, 8e
CHAPTER
Factors influencing demand
1
SLIDE 66
● Population
● Choice (numbers of suppliers)
● Choice (substitute products)
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Principles of Business, 8e
CHAPTER
Factors influencing supply
1
SLIDE 67
● Population
● Choice – substitutes
● Competition – number of suppliers
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Principles of Business, 8e
CHAPTER
1
SLIDE 68
MARKET PRICE
● Supply, demand, and competition
determine the market price for a product or
service.
● The market price is the point where
supply and demand are equal.
This is called the Equilibrium Point.
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Principles of Business, 8e
CHAPTER
1
SLIDE 69
MARKET PRICE
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Principles of Business, 8e
CHAPTER
1
SLIDE 70
Checkpoint 
● How is the 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.
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Principles of Business, 8e