Economic Resources

Making Economic Decisions

• Resources are the items that go into the making of goods and services.

• This lack of resources is called scarcity.

  • The principle of scarcity states that there are limited resources for satisfying unlimited wants and needs.

• Because resources are in limited supply, to have one thing may mean giving up something else.

• When dealing with scarcity, it is important to think of the best way to use the item that is in short supply.

Factors of Production

• Factors of production are all the economic resources necessary to produce a society’s goods and services

  • There are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources.

• Natural Resources are raw materials from nature that are used to produce goods.

  • Natural resources can often be processed in various ways to create goods.

• The economy of many countries is primarily based on its natural resources.

• Some natural resources, such as wheat and cattle, are renewable

  • Other resources are limited, or nonrenewable

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

• Labor resources are people who make the goods and services for which they are paid.

  • Labor can be skilled or unskilled, physical or intellectual.

• Capital resources are the things used to produce goods and services, such as buildings, materials, and equipment.

  • They are also called capital goods.

  • They include delivery trucks, supermarkets, cash registers, and medical supplies.

• Entrepreneurial resources are used by the people who recognize opportunities and start businesses.

  • Entrepreneurship is the process of recognizing a business opportunity, testing it in the market, and gathering the resources necessary to start and run a business.

  • An entrepreneur is an individual who undertakes the creation, organization, and ownership of a business.

    • He or she accepts the risks and responsibilities of business ownership to gain profits and satisfaction

• Entrepreneurial resources are different from labor resources, even though people provide both.

• Entrepreneurial resources are individuals who start and direct businesses to produce goods and services to satisfy needs or wants.

• Labor resources are people who produce the goods or services.

Economic Systems

Basic Economic Questions

• Economics is the study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices

• Societies make economic decisions about how to meet the needs of people by answering three basic economic questions.

  • What should be produced?

    • Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.

      • This is called an opportunity cost

  • How should it be produced?

    • The methods and labor used as well as the quality of items produced are important factors.

  • Who should share in what is produced?

    • The amount of income people receive determines how many goods and services they can have.

Different Types of Economies

• Economic systems are the methods societies use to distribute resources.

  • Different economic systems answer the three basic economic questions in different ways.

• Two basic types of economic systems are a market economy and a command economy.

  • A market economy is an economic system in which economic decisions are made in the marketplace.

    • The marketplace is where buyers and sellers meet to exchange goods and services, usually for money.

    • A market economy can also be called a private enterprise system, the free enterprise system, or capitalism.

    • In a market economy, resources are privately owned.

      • The government works to promote free trade and prevent unfair trade practices.

      • There is an uneven distribution of income.

• In a market economy, individuals are responsible for being informed and making careful decisions.

  • There is a relationship between price, supply, and demand.

  • The price for an item is determined through the interactions of supply and demand.

• Price is the amount of money given or asked for when goods and services are bought or sold.

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

• Demand is the amount or quantity of goods and services that consumers are willing to buy at various prices.

  • The higher the price, the less consumers will buy.

  • The lower the price, the more consumers will buy.

  • The equilibrium price is the point at which the quantity demanded and the quantity supplied meet.

• In a market economy, competition is observed.

• Profit motive is the desire to make a profit, and profit is the reward for taking a risk and starting a business.

  • A command economy is an economic system in which a central authority makes the key economic decisions.

    • The government dictates what will be produced, how it will be produced, and who will get the goods.

    • Goods that are not considered necessities are often unavailable.

    • Prices are controlled by the state.

    • Highly skilled workers may earn the same wages as low-skilled workers.

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

• Most nations have a mixed economy in which private ownership of property and individual decision making are combined with government intervention and regulations.

• A mixed economy is an economy that contains both private and public enterprises.

  • A mixed economy combines elements of capitalism and socialism.