Good

• Anything that can be grown or manufactured (made)

• Food• Clothes• Cars

Service

• Something a person does for someone else in exchange for money or value.

• Doctor• Hairdresser• waiter

Resources

• Natural • Human• Capital• Combine to make goods and services

Households supply businesses with labor (workforce) and payments for goods and services

Businesses provide households with income and goods and services.

The government supplies businesses with public goods and services and payments for products purchased.

Businesses provide the government with taxes and goods and services.

The government provides households with income and public

goods and services.

Households provide the government with labor (workforce) and taxes

Production, Consumption and Distribution

Four Questions all Economic Systems must

Address

Four Questions All Economic Systems must address…

What is produced?*Production*

• Goods and services must satisfy the consumers wants and desires

Four Questions All Economic Systems must address…

• HOW should these goods be produced?

*Factors of Production*1. Capital

2. Entrepreneurship3. Land4. Labor

Combine the factors of production to make or produce the goods and services

Four Questions All Economic Systems must address…

• For WHOM are the goods and services produced?

*Distribution* Getting the goods and services producer

to consumer

Four Questions All Economic Systems must address…

• HOW MANY goods and services should be produced?

*Consumption*Make enough to have a large profit and still

have consumer demand. How many is determined by supply and demand.

Supply and Demand

Supply and Demand determine price through their interaction

• DEMAND: is the amount of a good or service that consumers are willing and able to buy at a certain price

• SUPPLY: is the amount of a good or service that producers are willing and able to sell at a certain price.

LAW OF SUPPLY :Businesses will provide more products when they can sell them at higher prices

LAW OF DEMAND:Buyers will demand more productswhen they can buy them at lower prices

Supply and Demand…

• Scarcity is the inability to satisfy all wants at the same time due to limited resources

• Choices must be made as to what to produce, how much to produce and who will receive what is produced.

• PRICE: Mechanism to decide who gets goods and services. The amount that satisfies both producers for profit and consumers for value.

Scarcity

Scarcity

• The inability to satisfy all wants at the same time;

• the NEEDS are greater than the RESOURCES

Since resources are LIMITED consumers and producers must make CHOICES

• CHOICE: selecting from a set of alternatives

• OPPORTUNITY COST: what is given up when the choice is made.

*Scarcity forces us to choose which needs and wants to satisfy with available resources.

*Scarcity affects decisions concerning what and how much to produce, how goods and services will be produced and who will get

what is produced

Price

Choices

Economic Systems

Three Types1.Command

2.Mixed3.Free Market

Command Economy

• The central government makes decisions and determines how resources will be used.

• The central government owns property and resources.

• Businesses are not run for profit.

• Businesses are not run for profit.

• No competition• Lack of consumer choice• The government sets the

prices of goods and services.

• China, North Korea, Cuba

Mixed Economy

• Most common type of economic system

• Government and individuals share the decision making process

• Individuals and businesses make decisions for the private sector

• Individuals own the means of production

• Government makes plans for the public sector

• Government guides and regulates production of goods and services offered.

• A greater government role than in a free market economy

• Most effective economy for providing goods and services

• U.S. and most Western European countries are mixed economies

Free Market Economy

• Also known as capitalism or free enterprise

• Private ownership of property and resources (owned by individuals)

• Individuals and businesses make profits

• Individuals and businesses compete

• Economic decisions are made by supply and demand

• Profit is a motivator for productivity

• No government involvement

• Consumer sovereignty: buyers determine what is produced

The U.S. economy is a MIXED ECONOMY PRIVATE

PROPERTY

FREE MARKETS

PROFIT

COMPETITION

CONSUMER SOVEREIGNTY

Markets are allowed to operate without undue interference from the government. Money, goods and services flow continuously among individual households, businesses and the government

Consumers determine what goods and services are produced by what they buy

Money left over after all business expenses have been paid.

Rivalry between businesses for the same customers; results in better

quality Individuals can own the means of production & property without undue government interference