pp. 18-33

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

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

3. Key Words scarcity factors of production natural resources human resources capital resources entrepreneurial resources economics market economy demand supply equilibrium price command economy mixed economy

4. Factors of Production A shortage of resources is called scarcity. The means to produce goods and services are called economic resources, or factors of production.

5. Figure 2.1 YOUR ECONOMIC REALITY AT A GLANCE The average American spends $7 a day on food. People spend less than half of that money on home-cooked meals. Recreate the table below. Insert a check mark in the appropriate square based on your eating experience in one week. How do your choices influence your economic situation?

6. Natural Resources The raw materials found in nature are called natural resources. The amount of natural resources available to a society (or country) has a direct effect on its economy.

7. 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.

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

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

10. Entrepreneurial Resources Meeting the changing wants and needs of people requires entrepreneurial resources. A key to dealing with scarcity is to develop new resources and technologies.

11. Fast Review • What is scarcity? • What are the four factors of production? • What are some examples of capital resources? continued

12. 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?

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

14. 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?

15. 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. In most societies, people can have as many goods and services as they can afford to buy based on the income they receive.

16. Graphic Organizer Graphic Organizer Basic Economic Questions MARKET ECONOMY Economic decisions are made in the marketplace according to the laws of supply and demand. MIXED ECONOMY What should be produced? How should it be produced? Who should share in what is produced? Combination market and command economy. COMMAND ECONOMY Government makes all key economic decisions.

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

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

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

20. 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. Supply is the amount of goods and services that producers will provide at various prices.

21. 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.

22. 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?

23. Market Economy Capitalism, or private enterprise, is a market economy system. In a capitalist system, resources are privately owned.

24. 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 (profit motive) or choose a career.

25. Market Economy The Market’s Problems 1. Those who do not have the wanted job skills do not get an income. 2. Sometimes one or two businesses control the market, thus leading to higher prices and lower quality products.

26. 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.

27. Command Economy • There are two types of command economies: • communism, the state makes all the economic decisions • socialism, there is some form of private enterprise

28. Command Economy Advantage: equal standard of living Disadvantages: there is little choice of what to buy and no incentive for entrepreneurship

29. 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.

30. Fast Review • Summarize how economic decisions in the market economy are made. • Compare the types of economic systems. continued

31. Graphic Organizer Graphic Organizer Basic Economic Questions MARKET ECONOMY Economic decisions are made in the marketplace according to the laws of supply and demand. MIXED ECONOMY What should be produced? How should it be produced? Who should share in what is produced? Combination market and command economy. COMMAND ECONOMY Government makes all key economic decisions.