Back to Table of Contents pp. 18-33 Chapter 2 Economic Resources and Systems.

Back to Table of Contents

pp. 18-33

Chapter 2 Economic Resources and Systems

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Introduction to Business, Economic Resources and Systems

Why It’s ImportantWhy It’s Important

Understanding economic resources and economic systems is essential to lessening economic problems.

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Key WordsKey Wordsscarcityfactors of production natural resourceshuman resourcescapital resourcesentrepreneurial resourceseconomicsmarket economydemandsupplyequilibrium pricecommand economymixed economy

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Factors of Production Factors of Production

A shortage of resources is called scarcity.

The means to produce goods and services are called economic resources, or factors of production.

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Figure2.1 YOUR ECONOMIC REALITY AT A GLANCE

The average American spends $7 a day on food. People spend less than half of that money on home-cooked meals. Recreate the table below. Insert a check mark in the appropriate square based on your eating experience in one week.

How do your choices influence your economic situation?

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Natural Resources Natural Resources

The raw materials found in nature are called natural resources.

The amount of natural resources available to a society (or country) has a direct effect on its economy.

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Natural Resources Natural Resources

Some resources, like wheat and cattle, are renewable. They can be reproduced.

Other resources are limited, or nonrenewable, like coal, iron, and oil.

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Human Resources Human Resources

The knowledge, efforts, and skills people bring to their work are called human resources, or labor.

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Capital Resources Capital Resources

Capital resources are the things used to produce goods and services, like buildings, materials, and equipment.

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Entrepreneurial Resources Entrepreneurial Resources

Meeting the changing wants and needs of people requires entrepreneurial resources.

A key to dealing with scarcity is to develop new resources and technologies.

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Fast Review

1. What is scarcity?

2. What are the four factors of production?

continued

3. What are some examples of capital resources?

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Basic Economic Questions Basic Economic Questions A society makes economic choices by answering three economic questions:

• What should be produced?• How should it be produced?• Who should share in what is produced?

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What Should Be Produced? What Should Be Produced?

Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.

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How Should It Be Produced? How Should It Be Produced?

When a society decides what to produce, it must also address other types of questions, such as what methods will be used, how many people will work on the production, and what will be the quality of the items produced?

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Who Should Share in Who Should Share in What Is Produced? What Is Produced?

This question focuses on the concept that people can’t get everything that they want because society doesn’t have enough resources.

In most societies, people can have as many goods and services as they can afford to buy based on the income they receive.

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Graphic Organizer

What shouldbe produced?What shouldbe produced?

Basic Economic QuestionsBasic Economic Questions

Graphic OrganizerGraphic Organizer

MARKET ECONOMYMARKET ECONOMYEconomic decisions are made in the marketplace

according to the laws of supply and demand.

How should itbe produced?How should itbe produced?

Who should share inwhat is

produced?

Who should share inwhat is

produced?

COMMAND ECONOMYCOMMAND ECONOMYGovernment makes all key economic decisions.

MIXEDMIXED ECONOMYECONOMYCombination market and command economy.

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Types of Economic Systems Types of Economic Systems

Economics studies how society chooses to use resources to produce and distribute goods and services for people’s consumption.

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Market Economy Market Economy

In a market economy economic decisions are made in the marketplace according to the laws of supply and demand.

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Price is the amount of money given or asked for when goods and services are bought or sold.

Market EconomyMarket EconomyThe Market and PricesThe Market and Prices

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Demand is the amount or quantity of goods and services that consumers are willing to buy at various prices.

Market EconomyMarket EconomyThe Market and PricesThe Market and Prices

Supply is the amount of goods and services that producers will provide at various prices.

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Demand and supply work together.

When the quantity demanded and the quantity supplied meet, the price is called the equilibrium price.

Market EconomyMarket EconomyThe Market and PricesThe Market and Prices

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Figure2.2 VISUALIZING DEMAND AND SUPPLY

Remember these two points: (1) The demand curve always falls left to right on a graph, and (2) the supply curve always rises from left to right on the graph.

How many CDs will be demanded at $16 a piece?

How many CDs will be supplied at $18 a piece?

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Capitalism, or private enterprise, is a market economy system.

In a capitalist system, resources are privately owned.

Market EconomyMarket Economy

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A market economy provides the individual with the freedom to choose from many different competing products, and the freedom to start a business (profit motive) or choose a career.

Market EconomyMarket EconomyThe Market’s MotivationsThe Market’s Motivations

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1. Those who do not have the wanted job skills do not get an income.

Market EconomyMarket EconomyThe Market’s ProblemsThe Market’s Problems

2. Sometimes one or two businesses control the market, thus leading to higher prices and lower quality products.

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Command Economy Command Economy

In a command economy a central authority makes the key economic decisions.

A command economy is also called a planned or managed economy.

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Command Economy Command Economy

There are two types of command economies:

1. communism, the state makes all the economic decisions

2. socialism, there is some form of private enterprise

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Command Economy Command Economy

Advantage: equal standard of living

Disadvantages: there is little choice of what to buy and no incentive for entrepreneurship

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Mixed Economy Mixed Economy

Most nations have a mixed economy, a combination of a market and command economy.

The state takes care of people’s needs while the marketplace takes care of people’s wants.

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Fast Review

1. Summarize how economic decisions in the market economy are made.

2. Compare the types of economic systems.

continued

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Graphic Organizer

What shouldbe produced?What shouldbe produced?

Basic Economic QuestionsBasic Economic Questions

Graphic OrganizerGraphic Organizer

MARKET ECONOMYMARKET ECONOMYEconomic decisions are made in the marketplace

according to the laws of supply and demand.

How should itbe produced?How should itbe produced?

Who should share inwhat is

produced?

Who should share inwhat is

produced?

COMMAND ECONOMYCOMMAND ECONOMYGovernment makes all key economic decisions.

MIXEDMIXED ECONOMYECONOMYCombination market and command economy.