pp. 18-33

1. Chapter 2 Economic Resources and Systems pp. 18-33

2. Learning Objectives After completing this chapter, you’ll be able to: • Define scarcity. • List the four factors of production. continued

3. Learning Objectives After completing this chapter, you’ll be able to: • Identify the differences between market and command economies. • Explain why most countries prefer a mixed economy.

4. Why It’s Important Understanding economic resources and economic systems is essential to lessening economic problems.

5. Key Words scarcity factors of production natural resources human resources capital resources entrepreneurial resources economics continued

6. Key Words market economy demand supply equilibrium price command economy mixed economy

7. Factors of Production A shortage of resources is called scarcity. A basic economic problem for any society is how to manage its resources.

8. Factors of Production To meet the wants and needs of its people, a society must produce goods and services. The means to produce them are called economic resources, or factors of production.

9. Natural Resources The raw materials found in nature are called natural resources. Natural resources become factors of production when we use them to produce goods.

10. Natural Resources The economy of many countries is based on their natural resources.

11. Natural Resources Some resources, like wheat and cattle, are renewable. They can be reproduced. Other resources are limited, or nonrenewable, like coal, iron, and oil.

12. Natural Resources The amount of natural resources available to a society has a direct effect on its economy.

13. Human Resources The knowledge, efforts, and skills people bring to their work are called human resources, or labor.

14. Human Resources Labor can be skilled or unskilled, physical or intellectual. One of the biggest problems facing many nations today is not a shortage of labor but a shortage of skilled labor.

15. Capital Resources Capital resources are the things used to produce goods and services, like buildings, materials, and equipment.

16. Capital Resources As the wants and needs of people change, so do the needs for capital resources.

17. Entrepreneurial Resources Meeting the changing wants and needs of people requires entrepreneurial resources.

18. Entrepreneurial Resources Entrepreneurs improve on ways to use resources, or create and produce new ones. A key to dealing with scarcity is to develop new resources and technologies.

19. Making Decisions About Production No society has enough productive resources available to produce everything people want. Every society must, therefore, make choices.

20. Basic Economic Questions Rules and regulations determine choices.

21. Basic Economic Questions A society makes economic choices by answering three economic questions: • What should be produced? • How should it be produced? • Who should share in what is • produced?

22. What Should Be Produced? Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.

23. How Should It Be Produced? When a society decides what to produce, it must also address other types of questions, such as what methods will be used, how many people will work on the production, and what will be the quality of the items produced?

24. Who Should Share in What Is Produced? This question focuses on the concept that people can’t get everything that they want because society doesn’t have enough resources.

25. Who Should Share in What Is Produced? In most societies, people can have as many goods and services as they can afford to buy based on the income they receive.

26. Types of Economic Systems Economics studies how society chooses to use resources to produce and distribute goods and services for people’s consumption.

27. Types of Economic Systems To use its limited resources effectively, every nation needs an economic system.

28. Types of Economic Systems The primary goal of an economic system is to provide people with a minimum standard of living, or quality of life.

29. Types of Economic Systems The two basic and opposing economic systems that have been developed are: • Market economy • Command economy

30. Market Economy In a market economy economic decisions are made in the marketplace according to the laws of supply and demand.

31. Market Economy The Market and Prices Price is the amount of money given or asked for when goods and services are bought or sold.

32. Market Economy The Market and Prices Demand is the amount or quantity of goods and services that consumers are willing to buy at various prices.

33. Market Economy The Market and Prices The higher the price, the fewer consumers will buy an item. The lower the price, the more consumers will buy an item.

34. Market Economy The Market and Prices Supply is the amount of goods and services that producers will provide at various prices.

35. Market Economy The Market and Prices Demand and supply work together. When the quantity demanded and the quantity supplied meet, the price is called the equilibrium price.

36. Figure 2.2 VISUALIZING DEMAND AND SUPPLY Remember these two points: (1) The demand curve always falls left to right on a graph, and (2) the supply curve always rises from left to right on the graph. How many CDs will be demanded at $16 a piece? How many CDs will be supplied at $18 a piece?

37. Market Economy The Market and Prices Capitalism, or private enterprise, is a market economy system. In a capitalist system, resources are privately owned.

38. Market Economy The Market and Prices In a capitalist system, the primary role of government is to support the marketplace by removing obstacles such as trade barriers.

39. Market Economy The Market’s Motivations A market economy offers incentives, such as competition and the profit motive, to produce more.

40. Market Economy The Market’s Motivations The profit motive is the reward for taking a risk that encourages people to start businesses.

41. Market Economy The Market’s Motivations A market economy provides the individual with the freedom to choose from many different competing products, and the freedom to start a business or choose a career.

42. Market Economy The Market’s Motivations The problem with a market economy is that those who do not have the wanted job skills do not get an income.

43. Market Economy The Market’s Motivations Another problem in a market economy is that sometimes one or two businesses control the market, thus leading to higher prices and lower quality products.

44. Command Economy In a command economy a central authority makes the key economic decisions. A command economy is also called a planned or managed economy.

45. Command Economy There are two types of command economies. In a strong command economy, such as communism, the state makes all the economic decisions.

46. Command Economy In a moderate command economy, also called socialism, there is some form of private enterprise.

47. Command Economy The primary advantage of a command economy is that it guarantees everyone an equal standard of living.

48. Command Economy There are some disadvantages to a command economy. Since the state provides all goods and services in a strong command economy, there is little choice of what to buy.

49. Command Economy Another disadvantage to the command economy is that there is no incentive for entrepreneurship when you can’t run your own business.

50. Mixed Economy Most nations have a mixed economy, a combination of a market and command economy. The state takes care of people’s needs while the marketplace takes care of people’s wants.