Chapter 1Economic Decisions

Goals

•Distinguish between WANTS & NEEDS

•Explain the difference between goods and services

•Describe the economic resources used in the production of goods and services

Needs

•Basic to survival▫Food, Water▫Clothing▫Shelter

Wants

•Add to the quality of life•But not necessary for survival

•Wants never end – once we fulfill a want, it is usually followed by another want.

Goods and Services

•We satisfy our needs and wants with GOODS and SERVICES.

•GOODS (PRODUCTS) satisfy our MATERIAL needs and wants.

•SERVICES satisfy our wants that we can’t see or touch:▫Going to a movie▫Get a haircut▫Take a swimming lesson▫Use your cell phone

Economic Resources

•Companies need resources to produce goods and services.

•Economic resources are also called FACTORS OF PRODUCTION

3 types of resources1. Natural Resources (renewable and non-

renewable)a. Raw materials – all materials that come

from the earth Water, air, iron ore, gold, oil, copper,

vegetables, fish

•2. Human Resources▫It takes people or LABOR to turn natural

resources into goods and services People who run farms, factories, manage banks,

design, machines, process food, announce the news on CNN, check out or groceries, police the streets, or teach business classes.

3. Capital Resources▫ Tools and equipment used to produce

goods and services Office building, factories, tractors,

carpenters, power tools, computers, delivery trucks

Money used to start and run the business is also capital.

Limited Resources

•Shortage of resources - In reality, we can’t have everything we want sometimes because of $$$ or because there is a lack of resources to make the product.

Scarcity

•Conflict between unlimited wants and limited resources

•Referred to as the “Basic Economic Problem”

Economic Choices

•Government, Business and Consumers always face scarcity, therefore they must make important decisions about what they will produce, sell, and purchase

Making economic decisions

•Decision Making Process1. Define the problem2. Identify choices3. Evaluate the advantages and

disadvantages of each choice4. Choose5. Act on your choice6. Review your decision

Opportunity Cost• When making a decision, you must give up

something to gain something else.

• Example – You have to make a choice:▫Go to a football game with your friends▫Pick up an extra shift at work so that you can

make some money to put towards that new car you want. If you choose to work – not going to the football

game with your friends would be the opportunity cost What you give up to gain something else