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Intro 2 Business
Ch. 1 – Intro to Economics
Name: ________________________________
Directions: Please complete the following outline during the class discussion of this unit.
1.1 – Economic Decisions & Systems
I. Economic Decisions
A. __________ - these are necessary for survival
a. food, shelter, clothing, etc.
B. _________ – not necessary for survival but bring comfort to you.
a. Stereo, tv, cell phone, etc.
C. Maslow’s Heirarchy of Needs:
D. ______________ - things you can see and touch = tangible
a. T-Shirts, football, CDs
E. _____________ - Efforts provided by people, equipment, or technology
a. Haircut, movies in a theatre
F. Economic Resources (Factors of Production) - The means through which goods and services are produced (3
types)
a. ______________ – Resources (a.k.a. natural resources) includes anything in its natural state / Raw
materials supplied by nature
i. Iron ore, gold, water, fish, etc.
b. ______________ - People who work to produce goods and services
i. Includes the employees of the business who complete the work.
c. ______________ - Tools, equipment, buildings that are used to produce goods and services
i. Factories, computers, trucks, etc.
ii. Money $ $ $ (needed to run a business)
iii. __________ refers to the individual who takes the risk of owning and operating the business.
1.2 – Economic Choices
A. _____________
a. This is THE BASIC economic problem!!!!
b. It’s created by the difference between our limited resources (money) and our unlimited needs and wants.
c. Definition - not having enough ________ to satisfy every _______
i. Forces us to make choices
ii. Implement a budget
d. Economic Decision Making – the process of choosing which wants, among several options, will be
satisfied.
e. _________ – when you give up something to have something else…
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f.
Opportunity cost – the value of the __________ alternative that you did not choose.
i. Ex. 1
1. The benefit you get from your choice should be greater than the benefit from the nextbest choice.
a. Businesses carefully calculate the opportunity costs of decisions before making a
decision about how money will be invested
B. The Decision-Making Process
a. ______________
i. What is the central issue?
ii. Must be defined in order to make a decision that will lead to a solution
b. ______________
i. How many are there?
ii. What is the opportunity cost?
1. The forgone benefits. What you are giving up by choosing one situation over another.
i.e. Movie vs.bowling. Movie wins, bowling is the opportunity cost.
c. ______________
i. Look at the advantages and disadvantages of each choice/alternative
d. _________
i. The best one for the particular time
e. _______________
i. Just do it!
f. __________________
i. Did you define the problem correctly?
ii. Did you look at all the available choices?
iii. Did you act at the necessary time?
1.3 – Economic Systems
A. Every society has some system that transforms that society’s scarce resources into useful goods and services.
B. Key Economic Questions (3)
a. ______ goods and services are to be produced?
i. What is needed?
ii. What is wanted?
iii. Nations differ in their _______ like people do.
1. Providing technology vs. providing food, clothing, and shelter
2. Emphasis in space travel vs. military force
iv. Meeting everyone’s wants is a challenge.
1. Decisions must be made on which kinds of goods and services are valued the most and
best serve the nation.
b. ______ should the goods and services be produced?
i. What combination of resources can be used most effectively and efficiently?
1. Human resources?
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2. Natural resources?
3. Capital resources?
ii. What resources should be used that ARE AVAILABLE?
c. ____________ should the goods and services be produced?
i. What citizens will benefit from the production of goods and services?
ii. Whose needs and wants are the most critical?
iii. How will the goods be distributed?
iv. Should the goods and services be shared equally?
d. In the U.S., with our plentiful supply of goods & services, what you buy is largely determined by the
amount of money you have and are willing to spend
C. Types of Economic Systems (4)
a. Economic system:
i. A country’s economic system is classified based on how the country satisfies needs and how
resources are distributed.
b. Four basic systems (hold down CTRL + click on this link to watch video):
i. ________
1. centers on _______, ______, or ________
a. decisions are based on customs and beliefs
2. Good of the group always comes ________ individual desires
3. Exchange of goods done through _________ (trade without $$)
4. Advantages:
a. little disagreement over goals, roles
b. methods of production, distribution determined by custom
5. Disadvantages:
a. as result of resistance to change, less productive
b. do not use new methods; people not in jobs they are best suited for
c. low productivity results in low standard of living
d. change & growth occur slowly
e. countries are less developed
ii. Command - the government answers the basic economic questions
1. (__________________) government makes economic decisions
a. determines _____ to produce; ____ to produce; _________ products
b. determines who is employed, work hours, pay scales
2. Wants of individual consumers ________ considered
3. Government owns means of production: resources and factories
4. Cuba is a great example of this type of economy
a. Most of the means of production are owned and run by the government.
b. Most of the labor force is employed by the state.
c. The Cuban government sets most prices and rations goods.
d. Any firm wishing to hire a Cuban must pay the Cuban government, which will pay
the employee in Cuban pesos.
e. The average wage for a Cuban is 334 regular pesos per month ($16.70 per
month).
iii. Free Enterprise/Market Economy (USA) – the individuals interact in the marketplace to answer
the basic economic questions.
1. Based on _________________ by businesses & consumers with limited government
regulation.
a. _________ spend money, go into business, sell their labor as they wish
b. _________ decide how to use their resources to make the most money
2. Consumers, producers benefit each other when they act in self-interest
3. Fundamentals of a Market Economy:
a. ________ Property and Markets
b. Limited Government Involvement
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i. _____________—government should not interfere in economy
ii. ___________—system having private ownership of factors of production
1. says producers will create products consumers demand
2. no one tells consumers what to buy
iii. Actual market economies all have some government involvement
c. Voluntary Exchange in Markets
i. Voluntary exchange—traders believe they get more than they give up
ii. _____________– any place where G&S (or $$) are exchanged
d. Competition and Consumer Sovereignty
i. Consumer sovereignty—buyers choose products, control what is
produced
ii. Competition controls self-interested behavior
1. sellers offer low price or high value to please consumers, make
profit
e. Specialization and Markets
i. ____________—people concentrate their efforts in the activities they do
best
1. encourages efficient use of resources
2. leads to higher-quality, lower-priced products
4. Characteristics of a Free Enterprise System:
a. Laws encourage ____________ - the rivalry between 2 or more businesses for
customer dollars.
i. _______ competition – focuses on the selling price of a product or
service.
ii. __________ competition - focuses on factors that are not related to
what the product sells for. Yankees have highest ticket price so their
focus must be on something other than price.
b. Competition encourages businesses to develop ____ products and services.
c. Antitrust laws make ___________ illegal – when one business controls the entire
market for a good or service.
d. The ____________ encourages businesses to efficiently provide products, at a
profit, that consumers need & want.
e. Consumers cast their “economic vote” when they decide what to purchase.
5. Advantages:
a. Individuals free to make economic choices, pursue own work interests
b. Less government control means political freedom
c. Locally made decisions mean better use of resources, productivity
d. Profit motive ensures resources used efficiently, rewards hard work
i. resulting competition leads to higher-quality, more diverse products
6. Disadvantages:
a. Pure market economy has no way to provide public goods and services
b. Does not give security to sick or aged
c. During U.S. industrial boom, business owners rich, workers low pay
d. Businesses did not address problems caused by industrialization
e. Industrialized societies adopt some government control of economy
iv. Mixed – ALL economies are mixed
1. has elements of traditional, command, market systems
a. most common type of economic system
2. Traditional, command, market economies adopt elements from others
3. Life in a Mixed Economy
a. Family farming in U.S. serves as example of mixed economy
i. traditional: all members of family help bring in harvest
ii. command: affected by government—public school, roads, Social Security
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iii. market: own land, sell their products in competitive market
4. Types of Mixed Economies:
a. U.S. basically has market system
b. European countries greater mix of market and command elements
i. France—government controls some industries; provides social services
ii. Sweden—state owns part of all companies; lifelong benefits, high taxes
iii. Namibia—traditional; state supports market, foreign investment
c. Economy Continuum:
1.4 – Supply & Demand
A. Participating in a Market Economy
a. __________ purchase goods and services to satisfy their own needs and wants.
i. The National Football League is the largest live spectator sport in the world in terms of average
attendance
b. The ___________ makes the purchase
i. The consumer _______ it
c. __________ are businesses that use resources to develop products and services and provide them to
consumers.
i. The 32 owners of the NFL are producers responsible for providing consumers with professional
football
d. Finding a _________ between what producers are willing to produce and what consumers are willing to
buy is one of the major challenges of marketing.
B. Laws of Supply & Demand
a. __________ is the relationship between the quantity of a product that consumers are willing and able to
_______ and the price.
i. The _______________ states that when price goes ups demand goes down, and when price goes
down demand goes up.
1. The average price for a ticket to a New York Yankees game is now $72.97 dollars. The
league average is $26.74.
ii. _____________ (see below) illustrates the relationship between the price of a product and the
quantity demanded by consumers
b. ____________ is the relationship between the quantity of a product that producers are willing and able
to _____________ and the price.
i. The __________ (see below) for a product illustrates the relationship between the price of the
product and the quantity businesses will supply
Supply Curve
Demand Curve
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ii. ______________ is the point where the supply and demand curves intersect.
1. Equilibrium is rarely ever achieved. In economics it is more common to have either a
surplus or a shortage of goods or services.
iii. A ___________ occurs when demand is greater than supply. When a shortage occurs producers
can charge more for their products and still sell all they produce.
iv. A ___________ occurs when supply is greater than demand. Consumers will generally pay less for
products that are considered to be surplus.
v. The ___________ is the point where supply and demand are equal.
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