1 ESSENTIAL STANDARD 1 00 Understand the role

1 ESSENTIAL STANDARD 1. 00 Understand the role of business in the global economy.

2 OBJECTIVE 1. 01 Understand economic systems.

3 Topics • Satisfying needs and wants • Basic economic problem • Six steps of economic decision-making • Main types for economic systems • Market economy self-regulating principles

4 Satisfying Needs and Wants

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

6 Satisfying Needs and Wants continued • What are goods? Things you can see and touch • What are services? 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.

7 Satisfying Needs and Wants continued • How do businesses use economic resources to produce goods and services? • The types of economic resources are: • Natural • Human • Capital Economic resources, also called factors of production, are the means through which goods and services are produced.

8 Satisfying Needs and Wants continued • What are natural resources? Many natural resources are nonrenewable. Natural resources are raw materials produced by nature • What are human resources? Human resources are the people who contribute physical and mental energy to the production process.

9 Satisfying Needs and Wants continued What are capital resources? Capital resources are the tools, equipment, and buildings that are used to produce goods and services.

10 Satisfying Needs and Wants continued • What is the basic economic problem? The basic economic problem exists due to limited resources for satisfying unlimited needs and wants. • What is scarcity? Scarcity is not having enough resources to satisfy the unlimited needs and wants. The scarcity of resources for satisfying needs and wants influences choices.

11 Satisfying Needs and Wants continued 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.

12 SIX STEPS OF ECONOMIC DECISION-MAKING

13 Economic Decision-Making • What is economic decision-making? Choosing a course of action among several alternatives • What are the six steps of economic decision-making? 1. 2. 3. 4. 5. 6. Defining the problem Identifying choices Evaluating the advantages and disadvantages of each choice Choosing one choice Acting on the choice Reviewing the decision

14 Economic Decision-Making continued Try to solve a problem Problem: Choices: Adjust the foundation of a house 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

16 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.

17 MAIN TYPES OF ECONOMIC SYSTEMS

18 Economic Systems What are three economic questions that all economies must answer? • What to produce? • How to produce? • For whom to produce?

19 Economic Systems • What is an economic system? • An economic system is a nation’s plan for answering the three economic questions • The main types of economic systems are: • Command or Communist • Market • Traditional • Mixed

20 Economic Systems • Who owns the resources in the main types of economic systems? • Command • Centered on family • Market • Government • Traditional • The people • Who answers the economic questions?

21 Economic Systems Continued • A command, or communist, economy is an economics system in which the government owns resources and dictates what is produced. • A market economy is an economics system where goods and services are owned and controlled by the people. • A marketplace is anywhere that goods or services exchange hands. • In a traditional economy, goods and services are produced the way it has always been done (customs) and centered on family. • A mixed economy combines the elements of the command market economies.

22 MARKET ECONOMY SELF-REGULATING PRINCIPLES

23 United States Economic System • What is capitalism? Allows the freedom of consumption and production of goods and services • What type of economic system does the United States have? Based on Capitalism

24 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.

25 Market Economy • What is the role of consumers in a market economy? A consumer buys and uses goods and services. 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.

26 Market Economy continued What is the role of producers in a market economy? • 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.

27 Market Economy continued • Demand is the quantity of goods or services that consumers are willing and able to buy. • 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. • Use the following slides to explain supply and demand using graphs. • 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. • Supply Examples: • Many companies are creating an mp 3 player, therefore the price drops. • Only a few companies started selling tablets, such as the i. Pad, so

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

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

30 Supply and Demand Graphs Market (equilibrium) price is the point where supply and demand are equal. Intro to Business, 6 e, Thomson South-Western