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Economic Decisions and Systems in Business

Economic Decisions and Systems in Business

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Economic Decisions and Systems in Business

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  1. Economic Decisions and Systems in Business Introduction to Business Unit 1

  2. Needs are Essential • Needs are things that are required in order to live. • Food, water, clean air, clothing, and shelter. • Good education, a good job, and safety. • Most people need transportation, health care, and medicines.

  3. Wants Add Quality to LIFE! • Wants are things that add comfort and pleasure to your life. • It is not always easy to determine which products and services satisfy needs and wants.

  4. Needs and Wants are Unlimited! • Your needs and wants never end! • You are limited only by your imagination and by what business make available for sale. • Wants can go on and on, and they change day by day!

  5. CHECKPOINT! • What is the main difference between a need and a want?

  6. GOODS AND SERVICES

  7. Goods Vs. Services • Goods are things that you can see and touch. • They are products you can purchase to meet your wants and needs. • Services are activities provided for the satisfaction of others that are consumed at the same time they are produced. • Businesses provide services to you at the time you want to consume them.

  8. Goods and Services for Businesses and Consumers • Goods/services are purchased by businesses as well as by individual consumers. • Some goods/services are made especially for a business or consumer. • A business needs steel, plastic, gas, and computers to in order to do business. • Consumers buy TVs, furniture, phones, and books. They eat at restaurants, go on vacations and take their car to be repaired. • Businesses provide the goods and services that meet business and consumer needs and wants.

  9. The U.S. Economy • The U.S. is the largest producer of goods and services in the world! It produces more than the next two largest producers, China and Japan, combined. • The U.S. is also the world’s largest consumer. Example: The U.S. ranks first in oil consumption. • In 2009, U.S. consumed almost 20 million barrels per day which was more than the combined consumption of the next four countries—China, Japan, Russia, and India.

  10. U.S.—Consuming Goods • The shift from an economy based on agriculture to an industrialized economy resulted in higher incomes and more choices of products and services for consumers. • With more money to spend, consumer spending increased. • Increased consumer spending in a country means more jobs and a higher standard of living. However, as consumption increases, new problems emerge for consumers.

  11. Consumer Challenges • The ready availability of many products and services tempts consumers to buy things they do not need. • With careful buying decisions, people meet their basic needs, satisfy some of their wants, and still save and invest for their future.

  12. Challenges for countries • Increased consumption also creates challenges for countries. Such as: • Controlling pollution, preserving natural resources, and managing waste are all growing concerns world wide. • In addition to being the world’s largest producer of goods and services, the U.S. is tops in another area: • Americans produce more garbage per person per year than the residents of any other country.

  13. Economic Resources • How are the goods and services you need and want produced? Individuals no longer create the products and services they consume. • Businesses produce goods and services using economic resources. • Economic resources are the things available to be used to produce goods and services. Also known as FACTORS OF PRODUCTION!

  14. Three Types of Economic Resources! • The three types of economic resources are: • Natural resources, human resources, and capital resources. • Businesses and individuals must be able to obtain the needed economic resources to produce goods and services.

  15. Natural Resources • Raw materials supplied by nature are natural resources. • The earth contains oil, minerals, and nutrients needed to grow crops and forests and to feed animals. • Rivers, lakes and oceans are sources of both food and water. All products you consume begin with one or more natural resources. • Supply of these resources is limited, increased consumption will damage our environment. Recycling and conservation help preserve resources.

  16. Human Resources • The people who produce goods and services are known as human resources. • Many people are needed to complete the work required to produce a product. • Farmers raise livestock and crops, factory works and managers use equipment designed by engineers and manufactured by employees of other businesses to process the food. • Truck drivers, sales people, advertisers, and store employees are important!

  17. Entrepreneur • One type of human resource is an entrepreneur. • An entrepreneur is the risk taker who uses resources to create a new product or service. • Without the creative ideas of entrepreneurs and their belief that they can develop a successful business, there would be fewer choices of goods and services and fewer employment opportunities.

  18. Capital Resources • People must have access to tools and equipment in order to convert natural resources into products. • The products and money used in the production of goods and services are capital resources. • Capital resources include: • Buildings, equipment, supplies, money. • Some people invest money in businesses so the business will have the capital needed to operate. These people expect they will make money from the profits.

  19. Resources are Limited • All economic resources have a limited supply. Most resources can be used to produce several different products and services. • Individuals, businesses, and even countries compete for access to and ownership of economic resources. • Those resources that are in very high demand or that have a limited supply will command high prices. • Because there is a limited amount of natural resources, there will be a limit to the amount of goods and services that can be produced.

  20. CHECKPOINT! • What are the 3 types of economic resources? • Give an example of each type of resource.

  21. ECONOMIC CHOICES

  22. Basic Economic Problem • Individuals and businesses have unlimited wants and needs. However, the economic resources that can be used to meet their needs are limited. • The mismatch of unlimited wants and needs and the limited economic resources is known as: The basic economic problem.

  23. Scarcity • The basic economic problem results from scarcity. • Scarcity means not having enough resources to satisfy every need. • Scarcity affect everyone, but some people are more affected than others. People with limited income have to carefully choose the best way to spend their money. • Countries with few natural resources or poor education system may not be able to produce enough products.

  24. Financial Choices • Everyone has to make financial decisions based on scarcity. • Families, companies, governments. • Scarcity forces you to make choices or decisions among the alternatives. • Economic decision-making—the process of choosing which needs and wants will be satisfied.

  25. Trade Offs • Most of the choices you make result from considering a number of alternatives. When you decide on one alternative, you give up on the other alternatives you might have chosen. • When you give up something to have something else, you are making a trade-off.

  26. Opportunity costs • The value of the next-best alternative that you don’t choose. • It is what you are willing to give up in order to have your first choice.

  27. The Decision-making Process • Define the problem • Identify the choices • Evaluate the advantages and disadvantages of each choice. • Choose the best alternative • Act on your choice. • Review your decision.

  28. ECONOMIC SYSTEMS

  29. The Three Economic Questions • Every country in the world must deal with the basic economic problem. • In order to decide how available resources will be used to meet the needs and wants, each country must answer three economic questions: • What goods and services will be produced. • How will the goods and services be produced. • What needs and wants will be satisfied with the goods and services produced.

  30. What to produce? • Countries have differing types and amounts of resources. • Some countries have rich soil and regular rain. Other nations have desert climates or long, cold winters that make farming difficult. Some countries have abundant supplies of oil, coal, and other energy sources. • Each country decides what will be produced in order to meet their needs and wants.

  31. What to Produce? • Countries must decide the best ways to use their resources to produce what is needed. • Each country decides how to use its resources to produce the goods and services it needs.

  32. What needs and wants to satisfy. • Because wants and needs are unlimited, many will not be met no matter what a country decides to produce.

  33. Define economic System • The method a country uses to answer the three economic questions.

  34. Marketplace • Anywhere that goods and services exchange hands. • This includes a supermarket, the Internet, a business office or even a flea market.

  35. U.S. Economic System • Free Enterprise system or capitalism. • Capitalism refers to the private ownership of economic resources by individuals, rather than by the government. • Individual owners are free to decide what to produce with the resources they own. • Individual consumers are free to decide how they want to spend their money to purchase products and services.

  36. U.S. Economic System based on 4 Important Principles • Private property • Freedom of choice • Profit • competition

  37. Private Property • The right of private property means you can own, use, or dispose of things of value. • In the U.S. you can own anything you want and decide what you want to do with it, as log as it is legal.

  38. Freedom of Choice • Freedom of choice means that you can make economic decisions independently and must accept the consequences of those decisions. • Business owners can decide where to open a business, what to sell, and how to operate the company. • Consumers can decide where to shop, what to buy, and what they want to spend. • Only when individual decisions unfairly harm other will there be restrictions on freedom of choice.

  39. Profit • Businesses invest resources and take risks for one primary purpose—to earn a profit. • Profit—is the money left from sales after all of the costs of operating a business have been paid. • Because businesses aren’t guaranteed a profit, investors may lose the money they put into a business.

  40. Challenges of earning a profit • Businesses are challenged to plan carefully, invest wisely, and produce goods and services that customers want in order to make a profit. • While earning a profit is at the heart of the free enterprise system, it is not the only reason for invest money and operating a business. • People enjoy the challenge and freedom of business ownership as well as the satisfaction of providing goods and services that other people want.

  41. Competition • Competition is the rivalry among businesses to sell their goods and services. • Consumers have many choices of products and services and will select the ones they believe will provide the greatest satisfaction for their money. • Businesses work to improve their products and control their costs.

  42. Group Questions: • Answer on a sheet of paper. Consult with your group. • What is the primary reason business owners make investments and take risks in a private enterprise economy? • Name the four principles on which the U.S. economic system is based. • Time limit: 2 minutes!

  43. SUPPLY AND DEMAND

  44. Consumer and Customer • Buyers and sellers use the marketplace to make economic decisions. • Buying decisions are make by consumers—including individuals, businesses, and government. • A consumer is a person who buys and uses goods and services. Customer is a person who buys, but doesn’t consume the good or service. • Consumers and customers decide what to buy, from whom to buy, and what price they are willing to pay.

  45. Producers • Successful producers must pay close attention to the needs and experiences of consumers. • Producers are individuals and organizations that determine what products and services will be available for sale. • Producers invest resources and take risks in order to make a profit. They decide what products and services will be available in the economy, what needs and wants they will try to satisfy, and the prices they want to receive.

  46. Group Questions! • Answer on your sheet…..work as a team! • What is the difference between a customer and a consumer? Which category are you? • Explain the importance of a producer.

  47. Consumers Set Demand • When consumers make decisions about what to buy, they determine the demand for goods and services.

  48. Demand • The quantity of a good or service that consumers are willing and able to buy. • A business depends on demand for their products and services in order to make a profit.

  49. Producers Establish Supply • Understanding consumer demand helps businesses to determine what types and quantities of products to suppy.

  50. SUPPLY • Supply is the quantity of a good or service that businesses are willing and able to provide. • If consumers want a popular product and are willing to pay a price that allows a business to make a profit, businesses will be willing to provide the product to meet the demand. • On the other hand, if there is a greater supply of a product than consumers want or if customers are tiring of an older or poor quality product, businesses are less likely to continue to offer the product.