Economic Decisions and Systems Chapter 1
Transcript of Economic Decisions and Systems Chapter 1
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Chapter 1
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What is the difference
between a good and a
service?
Good: tangible
Service: intangible
What are some
consumer
goods/services?
What are some
business
goods/services?
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Largest producer of goods and services in the world? United States
Impact of consumer spending: More jobs
More money flow
Increased standard of living (What does this mean?)
Impact of increased consumption: Pollution
Conservation
Managing waste
**US produces more garbage per person per year than the residents of any other country
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Economic Resources: resources utilized to
create goods and services
AKA: Factors of Production
Three types:
Natural
Human
Capital
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Natural: raw materials
supplied by nature
Human: people who
produce goods and
services
AKA: Labor
Ex: Entrepreneur: take
risk of using resources to
start new product
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Capital: products and money used to create
goods and services
Money = Capital
Resources: limited or unlimited?
Limited
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Scarcity: unlimited
wants, limited
resources
AKA: Basic
Economic Problem
Everyone is affected
Scarcity requires
us all to make
difficult decisions
Example…
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Economic Decision-Making: choosing which
wants, among several, are to be satisfied
What occurs when you must make a decision:
Trade-Off:
Giving up one thing in order to have another
Example…
Opportunity Cost:
Weighing the options and looking at what is being
given up when a decision is made
Example…
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Steps to DMP:
Define the problem
Identify choices
Evaluate choices
Choose
Act
Review
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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 produced?
**For whom will the goods and services be produced?
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What goods and services will be produced?
Resources readily available
Resources that are limited
Climate
Focus of country
Find balance in needs and wants of country
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How will the goods and services be produced?
Best use of resources
Change in trends (ex: agriculture to industry)
Labor needs
What needs and wants will be satisfied?
Also answers the “For Whom?” question
Must determine what is most critical
Developed budget
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Economic System: the method by which a country answers the previous questions
Types of Systems: Command
Market
Traditional
Mixed
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Command:
AKA: directed,
planned
Resources: owned
and controlled by
government
Government makes
all decisions
Personal economic
choices are limited
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Market: AKA: capitalistic
Resources: owned and controlled by the people
Questions answered through consumer activity
Marketplace: where goods and services exchange hands
Dollar votes: when you build demand for a product by making a purchase
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Traditional: AKA: Custom-based
Goods and services are created based on what has always been done
Questions are answered based on skills and available resources
Found in less-developed questions
Looking to meet basic needs of the people
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Mixed:
Contains
characteristics of all
other systems
No pure systems exist
More economies are
moving from
command to market
Former Soviet Union
China
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US Economic System
Capitalism: private ownership of resources
Economic freedoms:
Free/private enterprise: freedom to open business
Private property: buy/dispose of personal items
Freedom of choice: spend money when/where you want
Voluntary exchange: giving something of value (usually money) in order to receive something of value
Profit: money left after bills are paid
Profit motive: working hard to make more money
Competition: two people/groups going after same goal
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Consumers:
Person who buys
and uses goods and
services
Can be:
Individual
Business
Government
Create demand
Producers:
People/organizations
that determine what
goods and services
will be available
Make decisions based
on demand
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Demand:
Quantity of goods and
services consumers
are willing and able
to purchase at a
particular price
Direct impact on
prices
Demand curve: shows
the relationship
between price and
quantity demanded
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Supply:
Quantity of goods and
services businesses
are willing and able
to provide at a
particular price
Direct impact on price
Supply curve:
relationship between
price and quantity
supplied
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Demand impact on price: Increase in demand = higher prices
Decrease in demand = lower prices
Supply impact on price: Increase in supply = lower prices
Decrease in supply = higher prices
Other factors to influence price: Competition
Quality of materials used
Unexpected events
Market price: point where supply and demand equal (AKA: equilibrium point)
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