Chapter 1 Economic Decisions & Systems

Business EssentialsMrs. Wilson

BEFORE ACTIVITY

Think-Pair-Share• Define and list an example of a need and a

want.

1-1 SATISFYING NEEDS & WANTS

In this lesson, students learns to distinguish between wants and needs and between goods and services.

Needs & Wants• Hardly a day goes by that you don’t see a product or

service that you would like to have• Web, mall, TV, radio, grocery store

• How do you decide what to buy or even if you need to buy at all?

• Determining what is a need and what is a want is an important part of making good decisions

• Needs – things that are required in order to live • Ex) food, water, clean air, clothing, shelter

• Other needs in today’s economy are a good education, employment, safety, and transportation

Needs & Wants• Wants – things that add comfort and pleasure to

your life• Ex) CD, iPad, tv, latest fashions

• Your needs and wants never end• They change from day to day, they are not the same

for each person• You are limited only by your imagination and by what

businesses make available for sale

Goods & Services• You satisfy your needs and wants by purchasing and

consuming goods and services• Goods – things that you can see and touch• Goods are the products you can purchase to meet

your wants and needs• Services – activities that are consumed at the same

time they are produced• Services are intangible, meaning they have not

physical characteristics

Goods & Services• Goods and services are purchased by businesses as

well as by consumers• What are some good and services businesses

need/want? (p8)• What are some goods and services consumers

need/want? • Businesses supply the goods and services that meet

business and consumer needs and wants

Goods & Services• The United States is the largest producer of goods

and services in the world• Americans consume more than any other country• Some believe the high level of U.S. consumer

demand stems from the sheer quantity of goods and services available and the amount of money businesses spend to advertise their offerings

• Spending opportunities occur daily and require careful decisions to make sure important needs and wants are satisfied in the future as well as today

Economic Resources• How do you get the goods and services you need and

want?• Economic resources are needed!• Economic resources – the means through which goods

and service are produced, also called factors of production

• 3 kinds of economic resources:• Natural resources – raw materials supplied by nature (p9)• Human resources – the people who produce goods and

services• Capital resources – the produces and money used in the

production of goods and services

Economic Resources• All economic resources have a limited supply• 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• 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

1-2 ECONOMIC CHOICES

This lesson presents the basic economic problem facing consumers and businesses and the steps in making effective decisions.

The Basic Economic Problem• Individuals and businesses have unlimited wants and

needs• The economic resources they have are limited• The mismatch of unlimited wants and needs and

limited economic resources is called the basic economic problem (p12)

• The basic economic problem results from scarcity – not having enough resources to satisfy every need

The Basic Economic Problem• Everyone makes decisions based on scarcity (p13)• Scarcity forces you to make choices or decisions

among the alternatives• Following a logical process can help you make better

decisions• Economic decision-making – the process of choosing

which wants, among several options, will be satisfied• Once you learn the process, your decision-making

will be easier and the process may lead to better choices

The Basic Economic Problem• Most of the choices you make result from

considering a number of alternatives• When you decide on one, you give up on the other

alternatives you might have chosen• Trade-off – what you make when you give something

up to have something else• The decision-making process helps you select the

best and most satisfying alternative from among a set of choices

• Opportunity cost – the value of the next-best alternative that you did not choose (p13)

The Decision-Making Process• There are 6 steps in the decision-making process• Businesses and individuals use the process as they

choose the best uses for their limited resources1. Define the problem2. Identify the choices3. Evaluate the advantages and disadvantages of each choice4. Choose one5. Act on your choice6. Review your decision

1-3 ECONOMIC SYSTEMS

In this lesson, students learn how the main types of economic systems answer 3 economic questions.

The 3 Economic Questions• All economies (or countries) of the world face the

basic economic problem of scarcity of resources• Each country must decide how the available resources

will be used to meet the needs/wants of its citizens• All economies must answer 3 economic questions:

1. What goods/services will be produced?2. How will the goods/services be produced?3. What needs/wants will be satisfied with the goods/services

produced?

• How the questions are answered indicates the type of economic system that exists in each country

Types of Economic Systems• Economic system – a nation’s plan for answering the 3

economic questions• The type of system is based on how much the

government is involved in the marketplace• Each is based on one of the 3 main types:

1. Command economy – resources owned and controlled by the government

2. Market economy – resources owned and controlled by the people of the country

3. Traditional economy – goods/services are produced the way it has always been done

The U.S. Economic System• Most nations of the world can be classified as a mixed

economy – combines elements of the command and market economies

• Can you identify the economic system of the U.S.?• Because individual businesses and consumers make

most of the decisions about what will be produced and consumed, the U.S. system best fits the definition of the market economy

• Another name for the economic system in the U.S. is capitalism – the private ownership of resources by individuals, rather than by the government

The U.S. Economic System• The U.S. economic system is based on 4 important

principles:• Private property• Freedom of choice• Profit• Competition

1-4 SUPPLY & DEMAND

This lesson discusses supply and demand and how they affect the prices of goods and services offered for sale.

Participating in a Market Economy• In a market economy, buyers and sellers use the

marketplace to make economic decisions• Buying decisions are made by consumers – people

who buy and use goods and services• Producers pay close attention to the needs and

activities of consumers• Producers – 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

Participating in a Market Economy• When consumers make decisions about what they will

purchase, they determine the demand for goods and services

• Demand – the quantity of a good or service that consumers are willing and able to buy

• Understanding demand tells a business what type and what quantity of products and services to supply

• Supply – the quantity of a good or service that businesses are willing and able to provide

Participating in a Market Economy• Supply, demand, and competition determine the

market price for a product or service• Market price – the point where supply and demand

are equal

AFTER ACTIVITY

Reflect• Describe the 3 types of economic systems.