Economic Decisions

and Systems
1-1 Satisfying Needs and Wants
1-2 Economic Choices
1-3 Economic Systems
1-4 Supply and Demand
• What is the difference between a need and a
want?
• Needs are essential
• Wants add to the quality of life

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• How do people satisfy their wants and needs?
• People satisfy their wants and needs by
purchasing and consuming goods and services.
What are the three types of economic resources?
Give an example of each type of resource.

 Natural: Raw materials supplied by nature.

 Ex. water, land, trees, animals, and minerals.

 Human: The people who produce goods and services.

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 Ex. labor (people who run farms and factories, transport goods, provide
services, or manage businesses).

 Capital: The products and money used in the production of goods and
services.

 Ex. money, land, buildings, tools, and equipment.

What is The Basic Economic Problem?

• The mismatch of unlimited wants and needs

and limited economic resources. (e.g., Individuals and
businesses have unlimited wants and needs, while economic resources are limited.)

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What is scarcity?

• not having enough resources to satisfy every

need.

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What is economic decision-making?

• the process of choosing which wants, among

several options, will be satisfied.

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What is opportunity cost?

• Opportunity cost is the value of the next best

alternative that you don’t choose.
• It is what you are willing to give up in order to
have your first choice.

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What is meant by the term trade-off?
• Trade-off is when you give up something to have
something else.
What are the steps in The
Decision-making Process?
1. Define the problem.
2. Identify the choices.

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3. Evaluate the advantages and disadvantages of
each choice.
4. Choose one.
5. Act on your choice.
6. Review your decision.
What are The Three Economic
Questions
• What to produce?
• How to produce?
• What needs and wants to satisfy?

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What is a command economy?

• An economy characterized by: government

(or central) control ownership of the
means of production, and with a central
authority setting prices of goods and

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services and for most allocation decisions.
What is a traditional economy?

• An economy characterized by a system where

traditions, customs, and beliefs shape the goods and
products the society creates. Also known as a
developing economy, a traditional economy is defined
by bartering and trading. Little surplus is produced,

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and if any excess goods are made, they are typically
given to a ruling authority or landowner.
What is a market economy?

• An economy characterized by: private

ownership of the means of production (for
example, farms and factories), and supply and
demand are responsible for the price and

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allocation decisions.
• What are the main differences among the
three economic systems?

• The main differences between the economic

systems are found in the ways in which the

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three economic questions are answered.
• Capitalism is also known as . . .

• A “Free Market Economy”

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• Which refers to the private ownership of
resources, rather than by the government.
• Name the four principles of the U.S. economic
system.

• Private property

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• Freedom of choice
• Profit
• Competition
• Private property means . . .
• you can own, use, or dispose of things of value.

• Freedom of Choice means . . .

• that you can make decisions independently and must accept
the consequences of those decisions.

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• Profit is . . .
• the money left from sales after all of the costs of operating a
business have been paid.

• Competition is . . .
• the rivalry among businesses to sell their goods and services.
• Consumers are . . .
• individuals and organizations who buy and use
goods and services.

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• Producers are . . .
• individuals and organizations that determine
what products and services will be available for
sale.
• Demand is . . .
• quantity of a good or service that consumers are willing
and able to buy.

• Supply is . . .

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• quantity of a good or service that businesses are willing
and able to provide.

• Market price is . . .
• the point where supply and demand are equal.
• Who sets demand?
• Consumers

• Who establishes supply?

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• Producers

• What determines market price?

• Supply, Demand, and Competition
• How does the price of a product affect
demand?

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• Higher prices can decrease demand
• Lower prices can increase demand
• How is the market price for a product
determined?

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• Supply, demand, and competition determine the
market price for a product or service.
• The market price is the point at which supply
and demand are equal.
• What factors influence demand?

• Consumers need and/or desire to purchase.

• Competing products – if alternate products or services are

available, consumers have choices.

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• The more choices, the lower the demand and the price
for any one of these competing products or services.
• The less choices, the higher the demand and the higher
the price.

• Seasonal factors.
• What factors influence supply?

• Competition:
• Competition – as competition increases so does supply; price
decreases.
• Competition – when limited, consumers cannot find good

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alternatives; price increases.

• Unforeseen circumstances – natural disasters,

inclement weather, and other factors can cause prices
to rise.
• How can businesses obtain a higher
price for products or services?

• Business restrict supply of products or services in order to

obtain a higher price.

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• When does this work?

• This can only work is customer demand is high and if there

are not good substitutes for the product/service.