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As someone who uses goods and services and will someday be a worker, you are part of the American economic
system.
Our Wants and Resources
SS.7.E.1.1, SS.7.E.1.3, LA.7.1.6.1
What is scarcity, and how does it affect economic choices?
After an hour of shopping, Jayna found a dress she liked. Then, as she walked toward the cash register, a pullover caught
her eye. It was her favorite color, and she liked it immediately.
Jayna had a problem, though. The sweater cost as much as the dress she had already picked out. She did not have enough
money to buy both. What should she do?
Jayna faced a common problem. She had to decide how to use her limited amount of money to satisfy her wants. Wants are
desires that people have that can be met by getting a product or a service. Jayna had to make a choice between competing
wants.
Unlimited Wants
If Jayna is like the rest of us, her wants are not limited to just two items. If you think about all the things you want, the list is
probably so long that we could say your wants are unlimited.
Wants fall into two groups. The first is goods and includes things that we can touch or hold. The second is services and
includes work that is done for us. Services include the health care provided by a doctor, the haircut by a hairstylist, or advice
about money provided by a banker.
Limited Resources
If resources are limited, and if wants are unlimited, then we have to make choices. Economics is the study of how people
choose to use their limited resources to satisfy their unlimited wants. Resources are all the things that can be used in
making products or services that people want. Economists talk about three types of resources:
Natural resources include a nation’s land and all of the materials nature provides that can be used to make goods or
services. Good soil for growing crops, trees for cutting lumber, and iron for making steel are natural resources.
Labor includes workers and their abilities. The more workers a society has, the more it can produce. Workers’
knowledge and skills are important, too. The more workers know and the better their skills are, the higher the quality
of goods and services they produce.
Capital, which includes buildings and tools, is the third type of resource. Businesses build factories to manufacture
goods. Equipment such as computers can help work go more quickly. Trucks or trains are used to move goods
around. Capital resources make work more productive.
The Basic Economic Problem
Jayna is not the only one who has the problem of satisfying her competing wants. This is the type of economic problem that
everyone—from individuals to cities, states, and countries—faces every day.
Scarcity occurs whenever we do not have enough resources to produce all of the things we would like to have. In fact, no
country has all of the resources it needs, or would like to have. Because of this, scarcity is the basic economic problem. The
topic of economics looks at how we go about dealing with this basic economic problem.
Identifying What is the basic economic problem faced by people and nations alike?
scarecity.
Why It MATTERS
Analyzing a Choice
Have you ever faced a situation when your wants exceeded your resources? SS.7.E.1.3
Write a paragraph describing the situation, the choice you made, and the reason for your choice.
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yes,because i want to have one thing at first. then i Societies and Economic Choices
SS.7.E.1.3, SS.7.E.1.6, LA.7.1.6.1
What determines how societies make economic choices?
Just as individuals make economic choices, so do entire countries. Scarcity is an economic problem in every nation. Will a society
use its limited resources for education or for health care? Will a nation focus on helping businesses grow so they can create more
jobs? Or will it spend money on training people for new jobs? Will it spend money on defense or on cleaning up the environment?
Three Basic Economic Questions
Scarcity of resources forces societies to make economic choices. These choices must answer three questions: What goods and
services will be produced? How will they be produced? Who will consume, or use, them?
Each country or society has to decide what goods and services it will produce to meet its people’s needs and wants. In making these
decisions, societies consider the natural, human, and capital resources they have. A nation with plenty of land, fertile soil, and a long
growing season is likely to use its land to grow crops. A country that has large reserves of oil might decide to produce oil.
After deciding what to produce, members of a society must decide how to produce these goods and services. Should they
encourage businesses to build factories for large–scale manufacturing of products such as automobiles or shoes? Or should they
promote small businesses and individual craftsmanship instead? After goods and services are produced, a society must decide who
gets the goods and services. Societies have different ways of distributing goods. The choices they make for distributing goods
affect how the goods are consumed. For example, should new housing units be reserved for low–income people, or should they be
rented to anyone who can afford them? Should new cars be given to public officials, or should they be sold to the highest bidder?
The resources of a nation are not the only reason societies answer the three basic questions differently. What a society values, or
thinks is most important, also has a big influence. Some societies value individual freedom the most. Others think that economic
equality is most important. Different answers to the three basic questions help a society promote the ideas its people believe are
most important. The important thing to remember is that all societies face the same three problems of deciding what to produce, how
to produce, and for whom to produce.
Economic Systems
Societies make economic choices or decisions in different ways. Each country has its own economic system, or way of producing
the things people need and want. The way that a society decides the three basic economic questions determines the type of
economic system the society has.
In a traditional economy, the economic questions are answered on the basis of habit or custom, or the way things have always
been done. For example, if you were born into a family of farmers, you would grow up to be a farmer. You would also farm in the
same way your parents and grandparents did. These economies generally are not very productive. They are not likely to change
much over time. This means they will not adopt new and better ways of producing goods.
In a market economy, individuals and businesses own the resources used to produce goods and services. They answer the three
economic questions on the basis of profit and price. Each person and each business makes choices based on a desire to find the
most profit from using their resources. They then sell the things they produce. They use the money they receive to buy other things
they want. Prices play an important role in the market economy. You will learn more about the role of prices later in this chapter.
In a command economy, planners who work for the government answer the economic questions. They decide what will be
produced, for example whether the society will produce machines or consumer goods. They also decide how these goods will be
produced and to whom they will be made available. Individuals and businesses in a command economy do not have much say in
how the economy works. Government planners command the actions that producers must follow.
The American Economy
The United States is based on a market economy. In a market economy, businesses are free to compete for profit with little
interference from the government. Individuals and businesses can choose how to use their resources. They choose what to
produce and how to produce it. Individuals and businesses use prices to determine who will receive the goods and services that are
produced.
The United States does not have a pure market system, though. The government does play a role in the economy. It oversees the
way markets work to make sure that businesses act fairly and honestly. This helps markets function smoothly by making sure
buyers and sellers can trust each other. The government also makes rules for how workers are to be treated. For example, the
government requires that a minimum wage be paid to most workers. The government also provides some services, such as
education, national defense, and disaster relief. The economy also has elements of a traditional economy. For example, many people
decide to work in the same job as a parent. Because our economy has some elements of all three types of economies (traditional,
market, and command), the United States has a mixed market economy.
Defining What determines the kind of economy a nation has?
it determines if it is a traditional,market,
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Florida CONNECTION
Minimum Wage
Florida voters approved a constitutional amendment in November 2004 creating a state minimum wage. Under the federal system,
states have a right to set a higher minimum wage than the federal minimum. However, they cannot set a lower minimum wage.
LESSON 1 REVIEW
Review Vocabulary
1. What are resources, and what are the three kinds that economists have identified?
LA.7.1.6.1
2. What is an economic system?
LA.7.1.6.1
3. Why is the U.S. economy called a mixed market economy?
LA.7.1.6.1
Answer the Guiding Questions
4. Making Connections How do resources and wants create scarcity?
SS.7.E.1.3
5. Explaining What are the differences among traditional, command, and market economies?
SS.7.E.1.3
6. NARRATIVE WRITING Write a short story about a student your age who has to make an economic choice. In your story, reveal
how plentiful wants conflict with scarce resources.
SS.7.E.1.3
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