Download Part 2 Economic Decisions and Systems

Economic Decisions
& Systems
Part 2
BMA
Economic Choices
 Just like choices in life – (i.e. go to
dinner with parents or the movies
with friends)
 Choices need to be made with
regard to economic resources
The Basic Economic Problem
Limited Resources
Unlimited Wants
Scarcity
 Means not having enough
 Not enough money to
buy everything we want
 Not enough doctors or
hospitals for a country to
provide adequate
healthcare
 Forces us to make choices
Choices
 Economic Decision
Making
 Opportunity Cost = the
value of the next best
alternative that you
weren’t able to choose
The Decision 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
Economic Systems
3 Economic Questions
 What to Produce?
 Agriculture, products, infrastructure, military
 How to Produce?
 Human labor, tools & equipment
 What needs and wants to satisfy?
 Capital goods vs consumer goods
Economic System
The method a country
uses to answer the
three economic
questions.
Command Economy
Resources are owned and
controlled by the government
Government answers 3 Q’s
 Cuba and North Korea
 Personal economic choices are
limited
Market Economy
 Resources are owned and controlled by
the people of the country
 Businesses & Individuals answer the 3 Q’s in
the market place
 Marketplace is anywhere goods & services
are exchanged
 They vote with their $$$’s
Traditional Economy
Goods and services are produced
the way it has always been done
Consume most of what they
produce-sell/trade with neighbors
Africa & Latin America
Mixed Economy
 Combines elements of the command
and market economies.
 Russia, France, Sweden
The U.S. Economic
System
Capitalism –
 Private ownership of resources
rather than by the government
 Synonymous for market economy,
free enterprise or private
enterprise
Based on 4 Principles
Private Property
Freedom of Choice
Profit
Competition
Private Property
Within limits of the law
Own, use or dispose of
things of value
Protected from others
taking your idea
Freedom of Choice
Makes decisions & accepts
consequences
Restrictions only when
decisions unfairly harm
others
Profit
Primary purpose businesses
invest resources and take
risks
Other purposes include
challenge and satisfaction of
providing G/S people want
Competition
Encourages business to
Improve products
Keep prices low
Provide effective cust. Service
Improve business practices
Supply & Demand
Participating in a market
Economy
Consumers
Producers
Consumers
Set Demand
The quantity of a good or
service that consumers are
willing and able to buy
Producers
Establish Supply
The quantity of a good or
service that businesses are
willing and able to provide
Determining Price
Demand increase – prices go up
Demand decreases = prices go
down
No substitutes=high demand
regardless of prices
Determining Price
Supply increase – prices go down
Supply decreases = prices go up
Competitors increase=increase in
supply (harder to change prices)
Limited competition=higher prices
Determining Market
Price
Where supply and demand are
equal