Ch 02

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Chapter 2 Economic Resources and Systems

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Introduction to Business, Economic Resources and Systems Slide 2 of 60

Learning ObjectivesLearning ObjectivesAfter completing this chapter, you’ll be After completing this chapter, you’ll be able to:able to:

1.1. DefineDefine scarcity.2.2. ListList the four factors of production.3.3. IdentifyIdentify the differences between market and command

economies.4.4. ExplainExplain why most countries prefer a mixed economy.

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Introduction to Business, Economic Resources and Systems Slide 3 of 60

Why It’s ImportantWhy It’s Important

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

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Introduction to Business, Economic Resources and Systems Slide 4 of 60

Key WordsKey Words

scarcityfactors of production natural resourceshuman resourcescapital resourceseconomics entrepreneurial resources

market economydemandsupplyequilibrium pricecommand economymixed economy

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Introduction to Business, Economic Resources and Systems Slide 5 of 60

Factors of Production Factors of Production A shortage of resources is called scarcity.

A basic economic problem for any society is how to manage its resources.

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Introduction to Business, Economic Resources and Systems Slide 6 of 60

Factors of Production Factors of Production To meet the wants and needs of its people, a society must produce goods and services.

The means to produce them are called economic resources, or factors of production.

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Introduction to Business, Economic Resources and Systems Slide 7 of 60

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. Copy and paste to a Word document to complete.

Q1. How do your choices influence your economic situation?

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Introduction to Business, Economic Resources and Systems Slide 8 of 60

Natural Resources Natural Resources The raw materials found in nature are called natural resources.

Natural resources become factors of production when we use them to produce goods.

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Introduction to Business, Economic Resources and Systems Slide 9 of 60

Natural Resources Natural Resources The economy of many countries is based on their natural resources.

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

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Introduction to Business, Economic Resources and Systems Slide 10 of 60

Natural Resources Natural Resources

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

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

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Introduction to Business, Economic Resources and Systems Slide 11 of 60

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

Labor can be skilled or unskilled, physical or intellectual.

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Introduction to Business, Economic Resources and Systems Slide 12 of 60

Human Resources Human Resources

One of the biggest problems facing many nations today is not a shortage of labor but a shortage of skilled labor.

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Introduction to Business, Economic Resources and Systems Slide 13 of 60

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

As the wants and needs of people change, so do the needs for capital resources.

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Introduction to Business, Economic Resources and Systems Slide 14 of 60

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

Entrepreneurs improve on ways to use resources, or create and produce new ones.

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Introduction to Business, Economic Resources and Systems Slide 15 of 60

Entrepreneurial Resources Entrepreneurial Resources

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

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Introduction to Business, Economic Resources and Systems Slide 16 of 60

Fast Review

Q3. What is scarcity?

Q4. What are the four factors of production?

Q5. What are some examples of capital resources?

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Introduction to Business, Economic Resources and Systems Slide 17 of 60

Making Decisions Making Decisions About Production About Production

No society has enough productive resources available to produce everything people want.

Every society must, therefore, make choices. Rules and regulations determine choices.

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Introduction to Business, Economic Resources and Systems Slide 18 of 60

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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Introduction to Business, Economic Resources and Systems Slide 19 of 60

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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Introduction to Business, Economic Resources and Systems Slide 20 of 60

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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Introduction to Business, Economic Resources and Systems Slide 21 of 60

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.

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Introduction to Business, Economic Resources and Systems Slide 22 of 60

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

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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Introduction to Business, Economic Resources and Systems Slide 23 of 60

Blood Is Thicker Than OilOccidental Petroleum Corp. is exploring for oil in Columbia. However, the U’wa people oppose oil exploration on the land they have lived on for thousands of years. For them, oil is the “blood of Mother Earth.”

continued

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Introduction to Business, Economic Resources and Systems Slide 24 of 60

The problem is more complex because the Columbian government supports the oil production, which will bring development to the country.

continued

Blood Is Thicker Than Oil

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Introduction to Business, Economic Resources and Systems Slide 25 of 60

Q6. Who has the right to the land—the U’wa people, the corporation, or the Columbian government?

Analyze

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Introduction to Business, Economic Resources and Systems Slide 26 of 60

Fast Review

Q7. When a society chooses to use a resource for one purpose and gives up the opportunity to use it for some other purpose, what cost is involved?

Q8. What happens to production methods when a country discovers new ways to combine economic resources?

Q9. In most countries, what determines how many goods and services a person can buy?

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Introduction to Business, Economic Resources and Systems Slide 27 of 60

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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Introduction to Business, Economic Resources and Systems Slide 28 of 60

Types of Economic Systems Types of Economic Systems To use its limited resources effectively, every nation needs an economic system. The primary goal of an economic system is to provide people with a minimum standard of living, or quality of life.

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Introduction to Business, Economic Resources and Systems Slide 29 of 60

Types of Economic Systems Types of Economic Systems The two basic and opposing economic systems that have been developed are:

• Market economy• Command economy

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Introduction to Business, Economic Resources and Systems Slide 30 of 60

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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Introduction to Business, Economic Resources and Systems Slide 31 of 60

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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Introduction to Business, Economic Resources and Systems Slide 32 of 60

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

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Introduction to Business, Economic Resources and Systems Slide 33 of 60

The higher the price, the fewer consumers will buy an item.

The lower the price, the more consumers will buy an item.

Market EconomyMarket EconomyThe Market and PricesThe Market and Prices

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Introduction to Business, Economic Resources and Systems Slide 34 of 60

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

Market EconomyMarket EconomyThe Market and PricesThe Market and Prices

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Introduction to Business, Economic Resources and Systems Slide 35 of 60

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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Introduction to Business, Economic Resources and Systems Slide 36 of 60

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.

Q.10 How many CDs will be demanded at $16 a piece?

Q11. How many CDs will be supplied at $18 a piece?

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Introduction to Business, Economic Resources and Systems Slide 37 of 60

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

In a capitalist system, resources are privately owned.

Market EconomyMarket EconomyThe Market and PricesThe Market and Prices

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Introduction to Business, Economic Resources and Systems Slide 38 of 60

In a capitalist system, the primary role of government is to support the marketplace by removing obstacles such as trade barriers.

Market EconomyMarket EconomyThe Market and PricesThe Market and Prices

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Introduction to Business, Economic Resources and Systems Slide 39 of 60

A market economy offers incentives, such as competition and the profit motive, to produce more. The profit motive is the reward for taking a risk that encourages people to start businesses.

Market EconomyMarket EconomyThe Market’s MotivationsThe Market’s Motivations

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Introduction to Business, Economic Resources and Systems Slide 40 of 60

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

Market EconomyMarket EconomyThe Market’s MotivationsThe Market’s Motivations

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Introduction to Business, Economic Resources and Systems Slide 41 of 60

The problem with a market economy is that those who do not have the wanted job skills do not get an income.

Market EconomyMarket EconomyThe Market’s MotivationsThe Market’s Motivations

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Introduction to Business, Economic Resources and Systems Slide 42 of 60

Another problem in a market economy is that sometimes one or two businesses control the market, thus leading to higher prices and lower quality products.

Market EconomyMarket EconomyThe Market’s MotivationsThe Market’s Motivations

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Introduction to Business, Economic Resources and Systems Slide 43 of 60

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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Introduction to Business, Economic Resources and Systems Slide 44 of 60

Command Economy Command Economy There are two types of command economies.

In a strong command economy, such as communism, the state makes all the economic decisions.

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Introduction to Business, Economic Resources and Systems Slide 45 of 60

Command Economy Command Economy In a moderate command economy, also called socialism, there is some form of private enterprise. The primary advantage of a command economy is that it guarantees everyone an equal standard of living.

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Introduction to Business, Economic Resources and Systems Slide 46 of 60

Command Economy Command Economy There are some disadvantages to a command economy.

Since the state provides all goods and services in a strong command economy, there is little choice of what to buy.

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Introduction to Business, Economic Resources and Systems Slide 47 of 60

Command Economy Command Economy Another disadvantage to the command economy is that there is no incentive for entrepreneurship when you can’t run your own business.

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Introduction to Business, Economic Resources and Systems Slide 48 of 60

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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Introduction to Business, Economic Resources and Systems Slide 49 of 60

Graphic Organizer

What shouldbe produced?What should

be 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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Introduction to Business, Economic Resources and Systems Slide 50 of 60

Fast Review

Q12. Summarize how economic decisions in the market economy are made.

Q13. Compare the types of economic systems.

Q14. What are the advantages and disadvantages of a command economy and a market economy?

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Introduction to Business, Economic Resources and Systems Slide 51 of 60

Q15. What are some examples of renewable and nonrenewable resources?

Q16. Some stoves use corn as a heating fuel. Based upon the cost savings, do you think the price of corn is high or low?

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Introduction to Business, Economic Resources and Systems Slide 52 of 60

Q17. Why do you think other countries are interested in buying corn-burning appliances?

Q18. In a command economy, how might a limit on the availability of corn affect the people?

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Introduction to Business, Economic Resources and Systems Slide 53 of 60

Graphs are a quick and useful way to visually communicate information.

Interpreting Line GraphsBusiness Building BlocksBusiness Building Blocks

Line graphs often show change over a period of time.

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Introduction to Business, Economic Resources and Systems Slide 54 of 60

The left side of a graph is the vertical axis.

Interpreting Line GraphsBusiness Building BlocksBusiness Building Blocks

The bottom of the graph is the horizontal axis.

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Introduction to Business, Economic Resources and Systems Slide 55 of 60

Both axes display numbers and a label indicating what the numbers represent.

Interpreting Line GraphsBusiness Building BlocksBusiness Building Blocks

Dots on the graph show numerical information.

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Introduction to Business, Economic Resources and Systems Slide 56 of 60

When the dots on the graph are connected, they form a line whose location and direction reveals information about change through time.

Interpreting Line GraphsBusiness Building BlocksBusiness Building Blocks

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Introduction to Business, Economic Resources and Systems Slide 57 of 60

• Read the title of the graph• Read the label on each axis• Understand the numbers on each axis,

including the interval used

How to Interpret a Line GraphBusiness Building BlocksBusiness Building Blocks

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Introduction to Business, Economic Resources and Systems Slide 58 of 60

• Examine where the dots are located on the graph

• Determine what the line(s) or curve(s) symbolize

How to Interpret a Line GraphBusiness Building BlocksBusiness Building Blocks

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Introduction to Business, Economic Resources and Systems Slide 59 of 60

• Compare the line(s) on the graph to both axes to determine the graph’s meaning

How to Interpret a Line GraphBusiness Building BlocksBusiness Building Blocks

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