Introduction to Business

Chapter 1 Economic Decisions and Systems

Warm-Up

• Answer the following in complete sentences.

– Is there a difference between needs and wants? Explain your answer.

Needs and Wants

•

Need

: things you cannot live without – Examples • Water, food, shelter, clothing

Wants

: things you would like to have but can live without They add comfort and Pleasure to life

Goods and Services

• Goods – Things you can see and touch • Examples: computers, food, clothes • Services – When someone does something for someone • Examples: hair care, dental care, doctor visits

Economic Resources

•

The means through which goods and services are produced

Warm-Up

• When Campbell’s Soup makes it’s Chicken Noodle Soup, what resources to they use to make the soup? Be specific and list all the resources you can think of.

Natural Resources

• Raw materials supplied by nature – Examples: lumber, coal, oil, water, animals, crops

Human Resources

• People producing the goods and services – Examples: farmers, factory workers, managers, accountants, entrepreneurs

Capital Resources

• The products and money used in the production of goods and services – Examples: money, tools, equipment • NOTE: Economic Resources are Limited

The Basic Economic Problem

• Scarcity – Not having enough resources to satisfy every need

Decision Making

•

Tradeoff

– When you give up something to have something else

Opportunity Cost

Definition:

the value of your next best alternative that you did not choose What did you give up or not have when making a decision to buy something or obtain a goal?

Decision Making Process

• • • • •

Specify

– Determine your goal. What is your need/want

Search

– Gather information

Sift

– Look at all options and opportunity costs

Select

– Make a choice and act on it

Study

– Evaluate the result

Warm-up

• Identify the possible opportunity cost for each of the following.

– Trying out for an athletic team – Accepting a part-time job – Studying for an important exam – Saving money to buy a used car – Obtaining a loan to start a business

Economic Systems

The Three Economic Questions

1. What to produce?

• Depends on resources, climate, and education 2. How to produce?

• Skilled/unskilled labor; technology available 3. What needs and wants to satisfy?

• What is most critical

Types of Economies

•

Command Economy

– Government owns most of the resources and make most of the economic decisions.

Types of Economies

•

Market Economy

: People rather than the government own the resources and run the business.

Types of Economies

•

Traditional Economy

– Goods and services are produced the same way for generations – Countries with traditional economies do not participate in the global economy Does our society have any elements of a traditional economy?

Mixed Economy

• A combination of a market economy and a command economy.

– U.S. has a mixed economy (the dominate economy is a market economy)

The U.S. Economic System

• Capitalism – Private ownership of resources by individuals not government • Free to decide what to produce and buy

Warm-Up

• What are some disadvantages of living in a market economy?

Four Principles of the U.S. Economy • Private Property – Individuals can own, use, or dispose of things of value • Freedom of Choice – Make decisions independently and must accept consequences of those decisions

Four Principles of the U.S. Economy • Profit – Formula: Price – Cost = Profit • Price you sell the product – amount producer spends to make product = left over profit – Making money (Profit) is the heart of the private enterprise system

Competition

• Contest among sellers to win customers.

How does competition affect consumers?

– Better customer service – Good quality products – Fair prices

Warm-Up

• What are the 5 steps in the decision making process?

• List the three components of economic resources and give an example of each.

Supply and Demand

• Consumers – anyone who buys or uses products.

• Producers – Individuals/organizations that determine what products/services will be available for sale

Demand

• Quantity of goods that consumers are willing and able to buy – Law of Demand • As prices go up, demand goes down – Example: of a cheeseburger cost $1 each we might buy more than if they are $10 each

Price $10.50

9.00

7.50

6.00

4.50

3.00

1.50

Demand Curve for Movies

1,000 Quantity 2,000 3,000 4,000 5,000 6,000 7,000

Supply

• Quantity of products that Producers are willing and able to make available for sale – Law of Supply • As prices go up, supply goes up • Example: if you are a supplier of computers you might make more available at $800 than at $200

Supply Curve for Watches

Price $105 90 75 60 45 30 15 10,000 Quantity 20,000 30,000 40,000 50,000 60,000 70,000 80,000

Market Price

• Point at which supply and demand are equal.

Price $2,100 1,800 1,500 1,200 900 600 300

Market Price for Notebook Computers

Demand Supply 100 Quantity 200 300 400 500 600 700 800

Warm-up

• List the three economic resources and give an example of each.

• List the 5 decision making steps and give an example of each.

Warm-Up

• Explain the following terms: – Freedom of choice – Capitalism – Right to private property