Needs vs. Wants

• Need- Basic requirement for survival

• Want- Means of expressing a need• Influenced by society• Influenced by culture• Change over time• Many only satisfy for short period of time• Depending on situation, can be labeled reasonable or unreasonable

http://www.hra.org/~library/greatdepression.html

By examining this picture, what needs or wants do thesepeople have? What would be unreasonable wants?

The Fundamental Problem in Economics isSCARCITY

• Scarcity- Resources are always limited compared with the number and variety of wants people have

• Scarcity is not caused by a shortage of money.

What is scarce in each of these scenarios?

1. Brownouts in Los Angeles?

2. People carpooling to work everyday?

3. Turning off the faucet while you brush your teeth?

4. Mandatory newspaper recycling

Electricity

Gasoline

Water

Trees

Scarcity is caused by a lack of productive resources or a lackin one of the four factors of production.

The Four Factors of Production: Resources people have for producing goods and services to satisfy their wants

1. Land-Natural Resources used to make the final product

2. Capital-Machines, tools, money used to make the final product

3. Labor-Workers used to make the final product

4. Entrepreneur-Risk taker

Four Factors of Production

Brainstorm: What does it take to produce a pair of blue jeans?

Land

Cotton

Dyes

Copper/metal

Labor

Sewers

Capital

Sewing machine

Scissors

Entrepreneur

Levi

Wrangler

Is water scarce today? Will water be scarce in the future?

What are some factors that areleading to this scarcity?

•Population Growth•Climate•Food Production•Land Use•Dams

http://school.discovery.com/lessonplans/activities/watereverywhere/module.html

• Production is followed by Distribution

• Distribution- Process by which goods and services are made available to the peoplewho want them

• Distribution is followed by Consumption

• Consumption- Act of buying or using goods or

services

http://www.curriculumlink.org/econ/images/chain.3.jpg

Want-Satisfaction Chain

Place in order using the Want-Satisfaction Chain

__ Computer

__ George uses his computer

__ George wants a computer game

__ Computer shipped to store

__ Programmer, silicon, factory

__ George wants a computer

__ George buys a computer

__ Computer is assembled in factory

Place in order 1-8

• Economy is all about making choices

• You have to make choices because of scarcity

• Which of your wants will you satisfy?

• You must examine the trade-offs-

An exchange of one thing in return for

another, especially relinquishment of one

benefit or advantage for another regarded as

more desirable

http://www.ruralwellbeing.org.uk/images/choice.gif

Concert Tickets New Computer IPOD

Future Costs

Can Reuse

Parents Approval

Very Little

No

Maybe

Yes

Yes

Most Likely

For Example

Very Little

Yes

Most Likely

• Opportunity Cost- Highest valued benefitgiven up when a choice is made

• For example, if you chose the concert ticketsthe opportunity cost would be the 2nd option that you would of chosen

• Businesses must make similar decisions everyday

• For Example: Should Ford Motor Co spendmoney on building a new car plant?

http://www.dailypress.com/extras/solutions/images/SOL120602.gif

1. What tradeoffs did

you make?

• What tradeoffs did you make in order to balance the budget?

• What is the opportunity cost of your budget recommendation?

• Summarize the likely future consequences of your budget recommendation.

• There are 3 basic economic decisions:

• Which goods and services should be produced and in what amounts?

• How should these good and services be produced?

• Who will get the goods and services that are produced?

http://cache.consumerist.com/assets/resources/2006/08/question_marks.jpg

• Questions 1: Which goods and services should be produced and in what amounts?

• Factors which influence this decision

• Factors of Production availability• Natural Resources• Capital• Labor

• How much they (entrepreneurs) think they can sell

http://www.business2000.ie/images/case_studies/enterprise_ireland/diagram1.gif

• Question 2: How will land, labor, and capital be combined?

• Primary goal: Least costly

• Technology- Practical application of science to commerce or industry

http://imagecache2.allposters.com/images/pic/FIP/MI-00394-C~Assembly-Line-Ford-Factory-Michigan-Posters.jpg

http://www.autolife.umd.umich.edu/Design/Gartman/D_Casestudy/P833_365_MachineShop2.gif

http://online.wsj.com/public/resources/images/MK-AG360_TWOPLA_20060523223742.jpg

• Question 3: Who will get the goods and services that are available?

• Should they be divided equally?

• Should citizens determine who gets what

• How much government intervention is there to answer this question

• How much economic freedom is there?

• A lot of government intervention equals no economic freedom• People would receive the same even some may work harder• People have no say in the economy

• No government intervention equal a lot of economic freedom• People compete freely and some may get more than others• People have all the say in the economy

• There are 4 different types of economies

• Traditional Economy

• Command Economy

• Market Economy

• Mixed Economy

Traditional Economy:• Basic economic decisions are made according to long established

patterns of behavior that are unlikely to change

• Customs and traditions are passed from elders to youth• Family is the basic unit, however all members work together

to support society, not just family• Works better with a smaller society

• Fewer resources are needed• Fewer goods and services needed to be produced

• Very few left in today’s world• Central and South America, Asia, Africa

Traditional Economy:• Answering the basic questions:

• What and How much to produce?• Answered by tradition and custom• Very little freedom • No Technology

• Very little change over a period of time

• Who gets what is produced?• May be based on role in society• May be divided according to number is family

• Who owns resources?• Usually own their own land, tools and labor

Command Economy: • Government or a central authority owns or controls the factor of production

and makes the basic economic decisions• Egyptians, Medieval lords, USSR, Cuba and North Korea

• Answering the 3 basic questions:

• What and how much is produced• Consumers have very little or no power in determining what or how much gets produced

• Who gets what is produced• Depends on the goals and values of central government

• Greedy Dictator-keeps more for himself OR• Satisfy the citizens, regardless how much they produce

• Who owns resources?• Central authority

Market Economy: System in which private individuals own the factors of production and are free to make their own choices about production, distribution and consumption

• Market Economy is also known as• Free Enterprise System- No government control• Capitalism- Capital is privately owned

• Market- Place or situation in which buyers and sellers agree to exchange goods and services. This can be the local farmers market, Walmartor Ebay

• No one person or group can run the market

• Competition plays an important role in the market economy• Producers compete for the wants of people• Labor competes for jobs http://www.favoritethingz.com/images/UserImages/90279-ebay-logo.jpg

Market Economy:

• Answering the 3 Basic Questions:

• What and how much is produced?

• Driven by two factors• Profit- Difference between the total cost of production

and the total revenues from buyers• Invest- To use your money to help a business get started

or grow, with hope that the business will earn a profit in which you can share

• Who gets what is produced?• Those who earn high wages, own land or capital will get more

• Who owns the resources?• Private people and companies

http://www.maced.org/images/dollar-sign.jpg

Modern day economy:

• Mixed Economy- Mixture of the 3 other systems

• Example: China• Predominately a command economy but have introduced more

of a market economy as private industries are steadily growingand competing for the wants of the Chinese population.

http://www.jzphotos.com/images/china/nanjing/nanjing04/china_mcdonalds_s.jpg

http://www.cnn.com/SPECIALS/1999/china.50/dispatches/09.24.americanization/coke.jpg http://www.neatorama.com/images/2006-10/pepsi-china.jpg

United States Economy:

• NOT a 100% pure market economy • Aspects on non-market economy

• Minimum wage• US Government controls education, mail, military• Several regulations on businesses

http://www.zeenews.com/pics/BUS/nyse-013107.jpg http://images.amazon.com/images/P/B0002423YK.01._SCLZZZZZZZ_V1111746544_.jpg

Mixed MarketCommand

Economic Spectrum- A way to compare economic systems, based

upon government involvement in a country’s economy

North Korea

United States

Canada

China

Mexico

http://www.rainer-rilling.de/texte/Kartographien%20der%20Macht/LinkedDocuments/economic%20freedom%202006.jpg

Developing Economy-

Any 3rd world nation that does not have

a self-sustaining economy or relies

on outside assistance from other nations

or organizations.

A developing economy will improve

their economy by:

1. Improving Infrastructure

A. Transportation

B. Communication

2. Improve Human Development

A. Education

B. Healthcare

3. Creating Jobs/Industries