WHAT IS AN ECONOMY?

Economy or Economic System

The way a nation makes choices. These choices

involve how the nation will use its

resources to produce and distribute goods

and services.

Resources

All things used in producing goods and services

Factors of Production – the technical term economists use for resources

Resource 1 – Land

Everything on the earth in its natural state / the earth’s natural resources

Resources Include:– Everything contained in the earth or found

in the sea– Coal and crude oil are examples– A lake and all the living

things in the lake are

also examples

Resource 2 – Labor

All the people who work in the economy

Labor includes:– Full and Part-time

Workers– Both the Public

and the Private sector

Resource 3 - Capital

The money needed to start and operate a business

The goods used in the production process

Examples are:– Factories– Office Buildings– Computers– Raw materials that are processed into a more useful form (lumber, steel)

Resource 4 - Entrepreneurship

The skills of the people willing to risk their time and money to run a business

Entrepreneurs organize the other factors of production to create the goods and services desired in an economy

Infrastructure

The physical development of a country

Things necessary for production and distribution of goods and services

Parts of the infrastructure include– Roads– Ports– Sanitation Facilities– Utilities

Scarcity

The difference between wants and needs and the resources available to meet these needs is called Scarcity.

Nations have unlimited wants and needs but limited resources –

Scarcity forces the nations to make economic choices.

The Basic Economic Questions

Nations must answer 3 basic economic questions when deciding to use their limited resources

The way nations answer these questions define their economic system– What goods and services should be produced?– How should the goods and services be

produced?– For whom should the goods and services be

produced?

What Should Be Produced?

Consumers decide what is to be produced through purchases made in the market place.

Items that satisfy the customer’s needs and wants are purchased making the products successful

Items that do not satisfy the needs and wants of the consumer are not purchased and are not successful

How Should Goods and Services Be Produced?

How products will be produced is left up to the business

Businesses must be competitive Businesses must produce quality products at lower

prices than their competitors Businesses must find the best way to produce goods

and services Businesses must also find the best way to encourage

customers to purchase their products

For Whom Should Goods and Services Be Produced?

Those individuals with the most money are able to purchase more goods and services

To obtain money individuals work and invest