The Business in the Global

Economy1.00.

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Objective 1.01Understand economic systems

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TopicsSatisfying needs and wantsBasic economic problemSix steps of economic decision-

makingMain types for economic systemsMarket economy self-regulating

principles

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Satisfying Needs and Wants

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Satisfying Needs and Wants

Needs are required in order to live.Wants are things that add comfort and pleasure to your life.

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Goods & Services

Goods are things that you can see and touch. Services are activities that are consumed at

the same time they are produced. The United States economy is the largest

producer of goods and services in the world. http://www.econedlink.org/interactives/index.ph

p?iid=101

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Economic ResourcesEconomic resources: How goods

and services are produced.

The types of economic resources are:NaturalHumanCapital

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Human and Natural Resources

Natural resources are raw materials produced by nature.

Human resources are the people who contribute physical and mental energy to the production process.

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Capital Resources

Capital resources are the tools, equipment,

and buildings that are used to produce

goods and services.

Examples: Trucks Printers, computers Factories, Schools, Office space

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Economic Problem & Scarcity Basic economic problem -

Limited resources to satisfy unlimited needs and wants.

Scarcity is not having enough resources to satisfy the unlimited needs and wants.

The scarcity of resources for satisfying needs and wants influences choices.

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Economic Decision-Making Economic decision-making is the

process of choosing which wants, among several options, will be satisfied.

Tradeoff is the process of giving up something for gaining something else.

Opportunity cost is the value of the next-best alternative that you did not choose.

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Six steps of

economic

decision-making

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Economic Decision-Making

1. Defining the problem2. Identifying choices3. Evaluate advantages /

disadvantages of each choice

4. Choosing one choice5. Acting on the choice6. Reviewing the

decision 14

Economic Decision-Making continued

Try to solve a problem

Problem: Adjust the foundation of a house

Choices: Ignore the problem

Contact companies located in the same city

Contact companies located in the next city

Contact companies located in other cities

What choice would you make?15

Economic Decision-Making continued

Some advantages: location of local companies, companies that guarantee of services, and companies that provides simple explanation of necessary services

Some disadvantages: prices for services and location of company in next city or other cities

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Economic Decision-Making continued Choosing one choice: A local

company that guarantees services and provides simple explanation of services.

Acting on choice: Schedule for local company to provide services of adjusting foundation of house.

Reviewing decision: Routinely check on condition of foundation of house.

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Tony is trying to decide on which cars to sell at his dealership.

He completed a spreadsheet to compare the options of cars.

Which part of economic decision-making process has he

performed?

 

A. Defining the problem

B. Evaluating the advantages and disadvantages of each choice

C.  Choosing one choice

D.  Acting on a choice18

Economic Systems

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Three Economic Questions

What to produce?How to produce?For whom to produce?

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Economic Systems An economic system is a nation’s plan

for answering the three economic questions.

The main types of economic systems are:Command or CommunistMarketTraditionalMixed

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Economic Systems

Who owns the resources in the main types of economic systems? Command

Market

Traditional

Who answers the economic questions?22

Centered on family

Government

The people

Economic Systems A command /communist economy

the government owns resources and dictates what is produced.

Examples: China and Cuba -a central leadership group expecting all the profit from production.

Market economy goods and services are owned and controlled by the people.

Example: local company choosing to produce gaming software.

Marketplace is anywhere that goods or services exchange hands.

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Economic Systems

Traditional economy, goods and services are produced the way it has always been done (customs) and centered on family.

Examples: Africa, Asia, Latin America and the Middle East.

Mixed economy combines the elements of the command and market economies.

Example: U.S.A.24

Market economy self-regulating

principles

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United States Economic System

Capitalism allows the freedom of consumption and production of goods and services.

The economic system of the United States is based on capitalism.

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United States Economic System continued

The four principles of U.S. economic system are:

Private property – can own, use, or dispose of things of value.

Freedom of choice – can make decisions independently and must accept consequences of those decisions.

Profit – money left from sales after all of the costs of operating a business have been paid.

Competition – the rivalry among businesses to sell their goods and services. 27

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Market Economy

A consumer buys and uses goods and services. Example: A local company choosing to produce gaming software.

Consumers decide what to buy, where to buy, from whom to buy, and what price they are willing to pay.

A consumer includes individuals, businesses, and government.

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Producers

Producers are individuals and organizations that determine what products and services will be available for sale.

Producers determine what products and services will be available, what needs and wants they will satisfy, and the prices they want to receive.

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SUPPLY & DEMANDThe market economy is based on the principles of supply and demand. Demand of goods or services that consumers are

willing and able to buy. Example: The purchase of I-Phone applications

increasing daily.

Supply refers to the quantity of goods or services that businesses are willing and able to provide.

Producers establish the quantity of goods or services that will be produced to meet the demands of consumers.Consumers set the demand for goods and services. Demand influences how much producers will supply.

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Supply and Demand Graphs

Intro to Business, 6e, Thomson South-Western

Supply Examples: Many companies are creating an mp3 player, therefore the price drops.

Only a few companies started selling tablets, such as the iPad, so the price was high when they were introduced to the public.

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Supply and Demand Graphs Intro to Business, 6e, Thomson South-

Western

Demand Examples: High demand for a new gaming console or electronic item causes the price to rise.

Last year’s fashions go “out of style” and drop in price occurred.

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Supply and Demand Graphs

Market (equilibrium) price is where supply

& demand are equal.

Intro to Business, 6e, Thomas South-Western