R28 -- CE.

11ab
What is economics?
 The study of how goods and services are produced and
distributed in a society.

Why must a person make choices?

 People have to make choices because resources are limited.

What types of choices have to be made?

 Who owns the resources?
 What resources are needed to make a product?
 What product to make?
 How to distribute the product?

Good -- something a person buys or uses

Services -- things that are done for people

Wants – things you would like to have

Needs – things you must have to survive

Scarcity -- inability to satisfy all wants and needs at the same time.

Resources -- Factors of production used in the making of goods

and services. There are 4 types:
* human * natural * capital * entrepreneurship

Choice -- Selecting an item from a set of possible alternatives.

Opportunity Cost -- What is given up when a choice is made. --

Highest valued alternative you did not select.

Price -- amount of money exchanged for a good or service.

Incentives – Things that incite or motivate – used to change

behavior.
 R 29 – CE 11 a
Supply – Amount of a good or service that producers are willing
and able to sell at a certain price.

Demand – Amount of a good or service that consumers are willing

to buy at a certain price.

The interaction of supply and demand determines price.

Example:
 Supply (low), demand (high) = higher price

 Supply (high), demand (low) = lower price

Prices usually stabilize when supply meets demand.

What role does a person play in the economy?

 A person can be a consumer (buyer), a producer (maker), or
a resource (what is used to make the good or service.)

What is production?
 Combining resources (human, natural, capital,
entrepreneurship) to make goods and services.

Land Labor Capital

(natural) (human) (money)

Entrepreneurship
(leadership, supervisory, ideas)

What is consumption?
 Using goods and services. Consumer preferences and price
determine what is produced.
 R30 -- CE.11b
What are the 3 basic economic questions that all societies must answer?
1. What (and how much) should be produced?
2. How to produce the goods and services?
3. Who should get the goods and services?

 First question depends on wants & needs of your society.

 Second question depends on the quantity the producer is willing and

able to produce. (And how much they think they can sell!)

 Third question depends on goals and values of their society, how these
wants/needs are met, and by whom these wants or needs are met.

Traditional -- (third world)

 Economic decisions based on custom & historical precedent
 People often perform the same type of work as their parents and
grandparents, regardless of ability or potential

Free Market -- (Capitalism, Market)

 Private ownership of property & resources
 Profit motive
 Competition
 Individual Choice
 Consumer sovereignty
 Minimal government involvement

Mixed Economy -- (like in the US)

 Individuals & businesses make decisions for private sector
 Government makes decision for public sector
 Greater government role than in a free market, less than in a
command
 Most common economic system today

Command -- (North Korea, Cuba)

 Central ownership of property & resources (government)
 Centrally - planned economy
 Lack of consumer choice
 R31 -- CE.11c

What type of economy does the US have?

 The US has a mixed economy. Decision-making is shared by
individuals, businesses, and the government.
 Prices in the US economy are determined by supply and
demand as buyers and sellers interact in the marketplace.

What are the characteristics of the US economy?

 Markets are generally allowed to operate without undue
government interference.

 Private property -- Individuals & businesses can own and

operate real or personal property, as well as the means of
production without undue government interference from the
government.

 Profit -- Earnings after expenses have been paid.

 Competition -- Rivalry among producers/sellers -- results in

better quality and lower prices.

 Consumer Sovereignty -- Consumers determine, through their

purchases, what goods and services will be produced.
Government involvement is limited. Most production
decisions are made in the private sector.