WHAT IS AN ECONOMY?
WHAT IS AN ECONOMY?
Economy or Economic System
The way a nation makes choices. These choices
involve how the nation will use its
resources to produce and distribute goods
and services.
ResourcesAll things used in producing goods
and servicesFactors of Production – the technical
term economists use for resources
Resource 1 – Land
Everything on the earth in its natural state / the earth’s natural resources
Resources Include:– Everything contained in the earth or found
in the sea– Coal and crude oil are examples– A lake and all the living things in the lake are also examples
Resource 2 – Labor All the people who
work in the economy
Labor includes:– Full and Part-time
Workers– Both the Public
and the Private sector
Resource 3 - Capital The money needed to start and operate
a business The goods used in the production
process Examples are:
– Factories– Office Buildings– Computers– Raw materials that are processed into a more useful form (lumber, steel)
Resource 4 - Entrepreneurship
The skills of the people willing to risk their time and money to run a business
Entrepreneurs organize the other factors of production to create the goods and services desired in an economy
Infrastructure The physical development of a
country Things necessary for
production and distribution of goods and services
Parts of the infrastructure include– Roads– Ports– Sanitation Facilities– Utilities
Scarcity
The difference between wants and needs and the resources available to meet
these needs is called Scarcity.
Nations have unlimited wants and needs but limited resources – Scarcity forces the nations to make economic choices.
The Basic Economic Questions
Nations must answer 3 basic economic questions when deciding to use their limited resources
The way nations answer these questions define their economic system– What goods and services should be produced?– How should the goods and services be
produced?– For whom should the goods and services be
produced?
What Should Be Produced?
Consumers decide what is to be produced through purchases made in the market place.
Items that satisfy the customer’s needs and wants are purchased making the products successful
Items that do not satisfy the needs and wants of the consumer are not purchased and are not successful
How Should Goods and Services Be Produced?
How products will be produced is left up to the business
Businesses must be competitive Businesses must produce quality products at lower
prices than their competitors Businesses must find the best way to produce goods
and services Businesses must also find the best way to encourage
customers to purchase their products
For Whom Should Goods and Services Be Produced?
Those individuals with the most money are able to purchase more goods and services
To obtain money individuals work and invest