Economic Decisions and Systems

1. Economic Decisions and Systems 1-1 Satisfying Needs and Wants 1-2 Economic Choices 1-3 Economic Systems 1-4 Supply and Demand

2. What is the difference between a need and a want? • Needs are essential • Wants add to the quality of life • How do people satisfy their wants and needs? • People satisfy their wants and needs by purchasing and consuming goods and services. Chapter 1

3. What are the three types of economic resources? Give an example of each type of resource. • Natural: Raw materials supplied by nature. • Ex. water, land, trees, animals, and minerals. • Human: The people who produce goods and services. • Ex. labor (people who run farms and factories, transport goods, provide services, or manage businesses). • Capital: The products and money used in the production of goods and services. • Ex. money, land, buildings, tools, and equipment. Chapter 1

4. What is The Basic Economic Problem? • The mismatch of unlimited wants and needs and limited economic resources. (e.g., Individuals and businesses have unlimited wants and needs, while economic resources are limited.) Chapter 1

5. What is scarcity? • not having enough resources to satisfy every need. Chapter 1

6. What is economic decision-making? • the process of choosing which wants, among several options, will be satisfied. Chapter 1

7. What is opportunity cost? • Opportunity cost is 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. Whatismeantbythetermtrade-off? Chapter 1 • Trade-off is when you give up something to have something else.

8. What are the steps in The Decision-making Process? 1. Define the problem. 2. Identify the choices. 3. Evaluate the advantages and disadvantages of each choice. 4. Choose one. 5. Act on your choice. 6. Review your decision. Chapter 1

9. What are The Three Economic Questions • What to produce? • How to produce? • What needs and wants to satisfy? Chapter 1

10. What is a command economy? • An economy characterized by: government (or central) control ownership of the means of production, and with a central authority setting prices of goods and services and for most allocation decisions. Chapter 1

11. What is a traditional economy? • An economy characterized by asystem where traditions, customs, and beliefs shape the goods and products the society creates. Also known as a developing economy, a traditional economy is defined by bartering and trading. Little surplus is produced, and if any excess goods are made, they are typically given to a ruling authority or landowner. Chapter 1

12. What is a market economy? • An economy characterized by: private ownership of the means of production (for example, farms and factories), and supply and demand are responsible for the price and allocation decisions. Chapter 1

13. What are the main differences among the three economic systems? • The main differences between the economic systems are found in the ways in which the three economic questions are answered. Chapter 1

14. Capitalism is also known as . . . • A “Free Market Economy” • Which refers to the private ownership of resources, rather than by the government. Chapter 1

15. Name the four principles of the U.S. economic system. • Private property • Freedom of choice • Profit • Competition Chapter 1

16. Private property means . . . • you can own, use, or dispose of things of value. • Freedom of Choice means . . . • that you can make decisions independently and must accept the consequences of those decisions. • Profit is . . . • the money left from sales after all of the costs of operating a business have been paid. • Competition is . . . • the rivalry among businesses to sell their goods and services. Chapter 1

17. Consumers are . . . • individuals and organizations who buy and use goods and services. • Producers are . . . • individuals and organizations that determine what products and services will be available for sale. Chapter 1

18. Demand is . . . • quantity of a good or service that consumers are willing and able to buy. • Supply is . . . • quantity of a good or service that businesses are willing and able to provide. • Market price is . . . • the point where supply and demand are equal. Chapter 1

19. Who sets demand? • Consumers • Who establishes supply? • Producers • What determines market price? • Supply, Demand, and Competition Chapter 1

20. How does the price of a product affect demand? • Higher prices can decrease demand • Lower prices can increase demand Chapter 1

21. How is the market price for a product determined? • Supply, demand, and competition determine the market price for a product or service. • The market price is the point at which supply and demand are equal. Chapter 1

22. What factors influence demand? • Consumers need and/or desire to purchase. • Competing products – if alternate products or services are available, consumers have choices. • The more choices, the lower the demand and the price for any one of these competing products or services. • The less choices, the higher the demand and the higher the price. • Seasonal factors. Chapter 1

23. What factors influence supply? • Competition: • Competition – as competition increases so does supply; price decreases. • Competition – when limited, consumers cannot find good alternatives; price increases. • Unforeseen circumstances – natural disasters, inclement weather, and other factors can cause prices to rise. Chapter 1

24. How can businesses obtain a higher price for products or services? • Business restrict supply of products or services in order to obtain a higher price. • When does this work? • This can only work is customer demand is high and if there are not good substitutes for the product/service. Chapter 1