Chapter 2 Economic Resources and Systems Mr. Manning pp. 20-35 LEARNING OBJECTIVES After completing this chapter, you’ll be able to: 1. Explain how scarcity requires individuals and nations to make decision about resources. 2. Describe the four factors of production. Chapter 2 - Economic Resources and Systems Slide 2 WHAT IS ECONOMICS? • Economics studies how society chooses to use resources to produce goods and services (G&S) for people’s consumption • Scarcity – occurs when there is a shortage of resources Chapter 2 - Economic Resources and Systems Slide 3 ECONOMIC RESOURCES 4 FACTORS OF PRODUCTION 1) Natural Resources 2) Labor Resources 3) Capital Resources 4) Entrepreneurial Resources Examples: (1) wheat that grows, (3) tractor to harvest it, (2) labor to turn it into flour Chapter 2 - Economic Resources and Systems Slide 4 1) NATURAL RESOURCES • Raw materials found in nature, used to produce goods • Renewable resources - wheat and cattle; can be reproduced • Nonrenewable resources – limited; coal, iron, and oil Chapter 2 - Economic Resources and Systems Slide 5 1) …NATURAL RESOURCES • The economy of many countries is based on their natural resources Examples: – Saudi Arabia – oil – Latin America – coffee – Japan – limited resources, get them elsewhere, trade technology Chapter 2 - Economic Resources and Systems Slide 6 2) LABOR RESOURCES • Knowledge, efforts, and skills people bring to their work • Labor can be skilled or unskilled, physical or intellectual • One of the biggest problems facing many nations today is a shortage of SKILLED labor Chapter 2 - Economic Resources and Systems Slide 7 3) CAPITAL RESOURCES • Things used to produce goods and services, like buildings, materials, and equipment. • As the wants and needs of people change, so do the needs for capital resources. Chapter 2 - Economic Resources and Systems Slide 8 ?????????????????????? • The economy of many countries is based on what? – Their natural resources. Chapter 2 - Economic Resources and Systems Slide 9 4) ENTREPRENEURIAL • Entrepreneur – a person who recognizes a business opportunity and assumes the risks of starting a business • Entrepreneurs improve on ways to use resources, or create and produce new ones Chapter 2 - Economic Resources and Systems Slide 10 4) …ENTREPRENEURIAL A key to dealing with scarcity is to develop new resources and technologies. Chapter 2 - Economic Resources and Systems Slide 11 ??????????????????????? • What are the four factors of production? 1. 2. 3. 4. Natural Resources Labor Resources Capital Resources Entrepreneurial Resources Chapter 2 - Economic Resources and Systems Slide 12 HOMEWORK • Rd. Pages 27-31 • Review questions 1-3 Chapter 2 - Economic Resources and Systems Slide 13 LEARNING OBJECTIVES After completing this chapter, you’ll be able to: 1. Identify the differences between market and command economies. 2. Describe the 3 basic economic questions every country must answer. Chapter 2 - Economic Resources and Systems Slide 14 ???????????????????? • How can countries deal with the issue of scarcity (think entrepreneurial resources)? – By developing new resources and technologies Chapter 2 - Economic Resources and Systems Slide 15 3 ECONOMIC QUESTIONS 1) What should be produced? 2) How should it be produced? 3) Who should share in what is produced? (Who gets the goods?) A society answers these questions to help decide what to do with their resources Chapter 2 - Economic Resources and Systems Slide 16 1) What Should Be Produced? Deciding to use a resource for one purpose means giving up the opportunity to use it for something else (tradeoff or opportunity cost) 2) How should it be produced “Goods” depend on… 1) HOW goods are to be produced 2) QUANTITY of available resources A Society must also ask: • What methods will be used? How many people will work on the production? What will be the quality of the items produced? Chapter 2 - Economic Resources and Systems Slide 17 3) Who Should Share in What Is Produced? “people can’t get everything that they want because society doesn’t have enough resources” Most societies - people can have as many goods and services as they can afford to buy Chapter 2 - Economic Resources and Systems Slide 18 ?????????????????????? • What are the three economic questions that every society must ask itself? 1. What should be produced? 2. How should it be produced? 3. Who should share in what is produced? Chapter 2 - Economic Resources and Systems Slide 19 TYPES OF ECONOMIC SYSTEMS • Every nation needs an “economic system” to use its resources effectively • Goal of an economic system - provide people with a minimum standard of living, or quality of life 2 Basic Opposing Systems: Market Economy vs. Command Economy Chapter 2 - Economic Resources and Systems Slide 20 Market Economy (Capitalism) • Market Economy (aka Capitalism) – resources are privately owned • You can own your own home, land, own business • Government control is minimal, their role is to SUPPORT (Ex: remove trade barriers) Chapter 2 - Economic Resources and Systems Slide 21 Market Economy (Capitalism) • Economic decisions are made in the marketplace according to the laws of supply and demand • Price - amount of money given or asked for when G&S are bought or sold Lower the price = more bought Higher the price = fewer bought Chapter 2 - Economic Resources and Systems Slide 22 Market Economy (Capitalism) • Supply - amount of G&S that producers will provide at various prices • Demand - amount or quantity of G&S that consumers are willing to buy at various prices • Equilibrium Price - When the quantity demanded equals the quantity supplied Chapter 2 - Economic Resources and Systems Slide 23 Market Economy (Capitalism) The demand curve always falls left to right on a graph The supply curve always rises from left to right on the graph. How many CDs will be demanded at $16 a piece? Chapter 2 - Economic Resources and Systems How many CDs will be supplied at $18 a piece? Slide 24 Market Economy (Capitalism) Supply and Demand Curve PRICE $ QUANTITY # Chapter 2 - Economic Resources and Systems Slide 25 Market Economy (Capitalism) • offers incentives (competition, profit) to produce more • constant demand for new G&S encourages entrepreneurship Chapter 2 - Economic Resources and Systems Slide 26 Market Economy (Capitalism) • owners and producers reap the most rewards • unskilled workers and older adults are often unable to afford basic needs such as health care • companies can join forces to control the supply of products and manipulate prices Chapter 2 - Economic Resources and Systems Slide 27 Market Economy (Capitalism) • Profit motive can become an end in itself rather than a means to improve the good for all What do you think are some examples of countries that have a Market Economy? Examples: U.S. and JAPAN Chapter 2 - Economic Resources and Systems Slide 28 ??????????????????? • What is the point called where supply meets demand? – The equilibrium price Chapter 2 - Economic Resources and Systems Slide 29 Command Economy • Command economy - a “central authority” makes the key economic decisions, also called a planned or managed economy 2 Types COMMUNISM vs. SOCIALISM Chapter 2 - Economic Resources and Systems Slide 30 Command Economy • COMMUNISM – (strong command economy) the state makes all the economic decisions Example: China, Cuba, Africa, Latin America • SOCIALISM – (moderate command economy) there is some form of private enterprise Example: France, Sweden Chapter 2 - Economic Resources and Systems Slide 31 Command Economy • guarantees everyone an equal standard of living • there is little choice of what to buy, state provides everything • no incentive for entrepreneurship when you can’t run your own business Chapter 2 - Economic Resources and Systems Slide 32 Mixed Economy Mixed Economy - combination of a Market and Command economy • The State takes care of people’s needs while the marketplace takes care of people’s wants Example: U.S. • Gov – Defense & Education • Marketplace – Cars, Computers, Fast Food Chapter 2 - Economic Resources and Systems Slide 33 Graphic Organizer Graphic Organizer Basic Economic Questions MARKET ECONOMY Economic decisions are made in the marketplace according to the laws of supply and demand. MIXED ECONOMY Combination market and command economy. What should be produced? How should it be produced? Who should share in what is produced? COMMAND ECONOMY Government makes all key economic decisions. Chapter 2 - Economic Resources and Systems Slide 34 ???????????????????????? • What are the two types of command economies? – Socialism and Communism Chapter 2 - Economic Resources and Systems Slide 35 HOMEWORK • PG. 32 #2-5 Chapter 2 - Economic Resources and Systems Slide 36 Questions to Study for the Quiz 1. What is an economic system? 2. What is the difference between a market economy and a command economy? 3. What are the advantages and disadvantages of a command economy and a market economy? 4. What are some examples of renewable and nonrenewable resources? 5. In a command economy, how might a limit on the availability of corn affect the people? 6. Knowing the Vocabulary/Key Words. Chapter 2 - Economic Resources and Systems Slide 37 End of Chapter 2 Economic Resources and Systems