Chapter 18 Objectives: 7.01, 7.02, 7.03. How Economic Systems Work We choose between: –Needs:...
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Transcript of Chapter 18 Objectives: 7.01, 7.02, 7.03. How Economic Systems Work We choose between: –Needs:...
How Economic Systems Work
• We choose between:– Needs: things required for survival– Wants: things we desire and make life more
comfortable; like entertainment, vacations, etc.
• Economics: the study of how we make decisions in a world in which resources are limited– Also study of how things are made, bought, sold
and used
How Economic Systems Work
• Two branches of Economics:–Microeconomics- studies the behavior and
decision-making of small units, like business or individuals
–Macroeconomics- deals with economy as a whole and decision-making of large units, like gov’ts, industries, and societies
• Economic Model: a theory that tries to explain human economic behavior
How Economic Systems Work
• Economic System: the way a country (or society) produces the things its people want and need– Each country has its own system– Systems determine how economic decisions will
be made– Things a country produces depend on
resources available
How Economic Systems Work
• Resources: the things used in making goods and providing services– Tools, natural resources (like soil or water), and
human labor
• Scarcity: when a country/society does not have enough resources to produce everything it needs or wants– Forces people to make choices– Sometimes people have to choose alternatives
How Economic Systems Work
• Because of scarcity, societies must choose:– What items to produce– How to produce these items– Whom the items are produced for
Making Economic Decisions
• Trade-offs: the alternatives that one faces when they decide to do one thing rather than another– Individuals, businesses, and societies make
trade-offs.
• Opportunity Cost: the cost of the next best use of your time or money when you choose to do one thing rather than another
Making Economic Decisions
• Types of Costs for Businesses:– Fixed Costs: costs that remain the same– Variable Costs: expenses that change with the
number of items produced• Examples would be wages and raw materials
– Total Costs: Fixed Costs + Variable Costs– Marginal Costs: the additional cost of producing
one additional unit of output
Making Economic Decisions
• Types of Revenue:– Total Revenue: Number of units sold multiplied
by the average price per unit– Marginal Revenue: The change in total revenue
that results from selling one more unit of output.• Marginal Benefit: the additional satisfaction or benefit
received when one more unit is produced
Making Economic Decisions
• Types of Costs for Businesses:– Fixed Costs: costs that remain the same– Variable Costs: expenses that change with the
number of items produced• Examples would be wages and raw materials
– Total Costs: Fixed Costs + Variable Costs– Marginal Costs: the additional cost of producing
one additional unit of output
Making Economic Decisions
• Types of Revenue– Total Revenue: The number of units sold
multiplied by the average price per unit– Marginal Revenue: the extra revenue that
results from selling one more unit• Marginal Benefit: the additional satisfaction/benefit
when one more unit is produced– This is often a goal of businesses