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Transcript
Economic Decisions and Systems
“The reason most people fail
instead of succeed is because they
trade what they want most for
what they want at the moment.”
Objectives
The learner will
Identify the differences between wants and needs
Examine the steps in the decision making process
Understand the different economic systems
Explore the concept of supply and demand
Satisfying Wants and Needs
 What is the difference between and WANT and a
NEED?
 Do you think people tend to use money for needs or
wants?
 What is the difference between a GOOD and
SERVICE?
 Do you think wants are more service based or good
based?
Wants and Needs
 Needs– things that are required in order to live
 Examples?
 Wants– things that add comfort and pleasure to your
life
 Examples?
 Factors affecting wants and needs
 Country you live in
 Economic status of your family
 If certain wants are available in your area
Wants and Needs
 Needs and Wants are unlimited
 New clothes
 New video game
 New shoes
 New cell phone
 New hairstyle
 New car
 Etc.
Goods and Services
 Wants and needs are satisfied by purchasing and
consuming goods and services.
 Good– things that you can see and touch
 Examples?
 Services– activities that are consumed at the same
time they are produced (intangible)
 Examples?
The U.S. Economy and Economic
Resources
 China is the largest producer of goods and services in
the world. U.S. is the 2nd largest.
 There is a high demand for goods and services in the
U.S. because there is a large quantity of goods and
services available.
 We need resources to produce these goods and
services
 Economic resource– the means through which goods
and services are produced.
Three Kinds of Economic Resources
 Natural Resources—raw materials supplied by nature
 Examples?
 Supply is limited
 Human Resources– people producing goods and services
 Examples?
 Entreprenuer—the risk taker who uses resources in an
entirely new way to create a new product or service
 Capital Resources– the products and money used in the
production of goods and services
 Examples?
Economic Choices
 The mismatch of unlimited wants and needs and
limited economic resources is called the basic
economic problem.
 Scarcity– not having enough resources to satisfy every
need.
 Because of scarcity, we are forced to make choices
 Economic decision making– the process of choosing
which wants among several options, will be satisfied.
Tradeoffs and Opportunity Costs
 Tradeoff– giving up something to have
something else
 Opportunity Cost– the value of the nextbest alternative that you did not choose.
 The benefit you get from choosing one thing
should be greater than the benefit of
choosing the other.
The decision making process
Define the Problem
Identify the choices
Evaluate the advantages
and disadvantages
Choose one
Act on your choice
Review your decisions
The 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 good
and services produced?
 How these questions are answered will determine
which type of economic system that country will have
Types of Economic Decisions
 Economic System– a nation’s plan for answering the




three economic questions
Command Economy
Market Economy
Traditional Economy
Mixed Economies
Command Economy
 Command Economy– the resources are
owned and controlled by the government
 Government officials decide what and how
goods are produced and how they will be
distributed and shared.
 Personal economic freedom is limited
Market Economy
 Market Economy– the resources are owned and
controlled by the people of the country
 The three questions are answered by the interaction of
people in the marketplace
 Marketplace– anywhere that goods and services
exchange hands
 The government has limited involvment
Traditional Economy
 Traditional Economy– goods and services
are produced the way it has always been
done
 Used in countries that are less developed
and are not participating in the global
economy
 Usually centered on meeting the basic needs
of people
Mixed Economies
 Mixed Economy– combines elements of
the command and market economies
 Most nations are classified as a mixed
economy
 What system is the U.S.?
The U.S. Economic System
 Capitalism– the private ownership of resources by
individuals, rather than by the government. (Also
called free enterprise or private enterprise)
 Based on four important principles
 Private Property
 Freedom of Choice
 Profit
 Competition
Four Principles
 Private Property– you can own, use or dispose of things of
value
 Freedom of Choice– you can make decisions independently
and must accept the consequences of those decisions.
 Only when those decisions harm others will the government get
involved
 Profit– the money left from sales after all the costs of operating a
business have been paid
 Competition– the rivalry among businesses to sell their goods
and services
 Competition forces businesses to improve products, keep costs low,
provide effective customer service, and search for new ideas
Supply and Demand
 Consumer– a person who buys and uses
goods and services
 Producer– individuals and organizations
that determine what products and services
will be available for sale
Consumers set demand
 When consumers make decisions about what to
purchase, they determine the demand for a product or
service.
 Demand– the quantity of a good or service that
consumers are willing and able to buy.
 A business can succeed or fail based on the demand
for their product or service
 Demand curve– as prices decreases the number of
consumers willing and able to purchase the product
will increase
Producers Establish Supply
 Knowing demand tells a business what type and what
quantity of products and services to supply
 Supply– the quantity of a good or service that business
are willing and able to provide.
 Supply curve– as the price increases, business will be
willing to supply larger quantities of the product
Determining Prices
 Prices are affected by the relationship between supply
and demand
 Factors influencing demand
 If many people want a product, the price will increase
 If there are a lot of the same product, demand will be
lower
 Factors influencing supply
 As the number of competitors increase, prices will stay
low
 Natural disasters or unforeseen circumstances can affect
supply
Determining Market Price
 Supply, Demand and Competition
determine the market price for a
product of service.
 Market price– the point where supply
and demand are equal.