Introduction to Business

Chapter 1

Economic Decisions and Systems

Warm-Up

• Answer the following in complete sentences.– Is there a difference between needs and

wants? Explain your answer.

Needs and Wants

• Need: things you cannot live without– Examples

• Water, food, shelter, clothing

Wants: things you would like to have but can live without

They add comfort and

Pleasure to life

Goods and Services

• Goods– Things you can see and touch

• Examples: computers, food, clothes

• Services– When someone does something for someone

• Examples: hair care, dental care, doctor visits

Economic Resources

• The means through which goods and services are produced

Warm-Up

• When Campbell’s Soup makes it’s Chicken Noodle Soup, what resources to they use to make the soup? Be specific and list all the resources you can think of.

Natural Resources

• Raw materials supplied by nature– Examples: lumber, coal, oil, water, animals,

crops

Human Resources

• People producing the goods and services– Examples: farmers, factory workers, managers,

accountants, entrepreneurs

Capital Resources• The products and money used in the

production of goods and services– Examples: money, tools, equipment

• NOTE: Economic Resources are Limited

The Basic Economic Problem

• Scarcity– Not having enough resources to satisfy every

need

Decision Making

• Tradeoff– When you give up something

to have something else

Opportunity Cost

Definition: the value of your next best alternative that you did not choose

What did you give up or not have when making a decision to buy something or obtain a goal?

Decision Making Process

• Specify – Determine your goal. What is your need/want

• Search – Gather information

• Sift – Look at all options and opportunity costs

• Select – Make a choice and act on it

• Study – Evaluate the result

Warm-up

• Identify the possible opportunity cost for each of the following.– Trying out for an athletic team– Accepting a part-time job– Studying for an important exam– Saving money to buy a used car– Obtaining a loan to start a business

Economic Systems

The Three Economic Questions

1. What to produce?• Depends on resources, climate, and

education

2. How to produce?• Skilled/unskilled labor; technology available

3. What needs and wants to satisfy?• What is most critical

Types of Economies

• Command Economy – Government owns most of the resources and make most of the economic decisions.

Types of Economies

• Market Economy: People rather than the government own the resources and run the business.

Types of Economies

• Traditional Economy – Goods and services are produced the same way for generations– Countries with traditional economies do not

participate in the global economy

Does our society have any elements of a traditional economy?

Mixed Economy

• A combination of a market economy and a command economy.– U.S. has a mixed economy (the dominate

economy is a market economy)

The U.S. Economic System

• Capitalism– Private ownership of resources by individuals

not government• Free to decide what to produce and buy

Warm-Up

• What are some disadvantages of living in a market economy?

Four Principles of the U.S. Economy

• Private Property– Individuals can own,

use, or dispose of things of value

• Freedom of Choice– Make decisions

independently and must accept consequences of those decisions

Four Principles of the U.S. Economy

• Profit– Formula: Price – Cost = Profit

• Price you sell the product – amount producer spends to make product = left over profit

– Making money (Profit) is the heart of the private enterprise system

Competition

• Contest among sellers to win customers.

How does competition affect consumers?– Better customer service– Good quality products– Fair prices

Warm-Up

• What are the 5 steps in the decision-making process?

• List the three components of economic resources and give an example of each.

Supply and Demand

• Consumers– anyone who buys or uses products.

• Producers– Individuals/organizations that determine

what products/services will be available for sale

Demand

• Quantity of goods that consumers are willing and able to buy– Law of Demand

• As prices go up, demand goes down – Example: of a cheeseburger cost $1 each we might buy

more than if they are $10 each

Price

$10.50

9.00

7.50

6.00

4.50

3.00

1.50

1,000Quantity

2,000 3,000 4,000 5,000 6,000 7,000

Demand Curve for Movies

Supply

• Quantity of products that Producers are willing and able to make available for sale– Law of Supply

• As prices go up, supply goes up• Example: if you are a supplier of computers you

might make more available at $800 than at $200

Price

$105

90

75

60

45

30

15

10,000Quantity

20,000 30,000 40,000 50,000 60,000 70,000 80,000

Supply Curve for Watches

Market Price

• Point at which supply and demand are equal.

Price

$2,100

1,800

1,500

1,200

900

600

300

100Quantity

200 300 400 500 600 700 800

Market Price for Notebook Computers

DemandDemand SupplySupply

Warm-up

• List the three economic resources and give an example of each.

• List the 5 decision making steps and give an example of each.

Warm-Up

• Explain the following terms:– Freedom of choice– Capitalism– Right to private property