1. pp. 18-33 Chapter 2 Economic Resources and Systems

3. Why It’s Important Understanding economic resources and economic systems is essential to lessening economic problems.

4. Key Words scarcity factors of production natural resources human resources capital resources economics entrepreneurial resources market economy demand supply equilibrium price command economy mixed economy

5. Factors of Production A shortage of resources is called scarcity . A basic economic problem for any society is how to manage its resources.

6. Factors of Production To meet the wants and needs of its people, a society must produce goods and services. The means to produce them are called economic resources, or factors of production .

7. Figure 2.1 YOUR ECONOMIC REALITY AT A GLANCE The average American spends $7 a day on food. People spend less than half of that money on home-cooked meals. Recreate the table below. Insert a check mark in the appropriate square based on your eating experience in one week. Copy and paste to a Word document to complete. Q1. How do your choices influence your economic situation?

8. Natural Resources The raw materials found in nature are called natural resources . Natural resources become factors of production when we use them to produce goods.

9. Natural Resources The economy of many countries is based on their natural resources. Some resources, like wheat and cattle, are renewable . They can be reproduced.

10. Natural Resources Other resources are limited, or nonrenewable , like coal, iron, and oil. The amount of natural resources available to a society has a direct effect on its economy.

11. Human Resources The knowledge, efforts, and skills people bring to their work are called human resources , or labor. Labor can be skilled or unskilled, physical or intellectual.

12. Human Resources One of the biggest problems facing many nations today is not a shortage of labor but a shortage of skilled labor.

13. Capital Resources Capital resources are the things used to produce goods and services, like buildings, materials, and equipment. As the wants and needs of people change, so do the needs for capital resources.

14. Entrepreneurial Resources Meeting the changing wants and needs of people requires entrepreneurial resources . Entrepreneurs improve on ways to use resources, or create and produce new ones.

15. Entrepreneurial Resources A key to dealing with scarcity is to develop new resources and technologies.

16. Fast Review Q3. What is scarcity? Q4. What are the four factors of production? Q5. What are some examples of capital resources?

17. Making Decisions About Production No society has enough productive resources available to produce everything people want. Every society must, therefore, make choices. Rules and regulations determine choices.

19. What Should Be Produced? Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.

20. How Should It Be Produced? When a society decides what to produce, it must also address other types of questions, such as what methods will be used, how many people will work on the production, and what will be the quality of the items produced?

21. Who Should Share in What Is Produced? This question focuses on the concept that people can’t get everything that they want because society doesn’t have enough resources.

22. Who Should Share in What Is Produced? In most societies, people can have as many goods and services as they can afford to buy based on the income they receive.

23. Blood Is Thicker Than Oil Occidental Petroleum Corp. is exploring for oil in Columbia. However, the U’wa people oppose oil exploration on the land they have lived on for thousands of years. For them, oil is the “blood of Mother Earth.” continued

24. The problem is more complex because the Columbian government supports the oil production, which will bring development to the country. continued Blood Is Thicker Than Oil

25. Q6. Who has the right to the land — the U’wa people, the corporation, or the Columbian government? Analyze

26. Fast Review Q7. When a society chooses to use a resource for one purpose and gives up the opportunity to use it for some other purpose, what cost is involved? Q8. What happens to production methods when a country discovers new ways to combine economic resources? Q9. In most countries, what determines how many goods and services a person can buy?

27. Types of Economic Systems Economics studies how society chooses to use resources to produce and distribute goods and services for people’s consumption.

28. Types of Economic Systems To use its limited resources effectively, every nation needs an economic system. The primary goal of an economic system is to provide people with a minimum standard of living, or quality of life.

30. Market Economy In a market economy economic decisions are made in the marketplace according to the laws of supply and demand.

31. Price is the amount of money given or asked for when goods and services are bought or sold. Market Economy The Market and Prices

32. Demand is the amount or quantity of goods and services that consumers are willing to buy at various prices. Market Economy The Market and Prices

33. The higher the price, the fewer consumers will buy an item. The lower the price, the more consumers will buy an item. Market Economy The Market and Prices

34. Supply is the amount of goods and services that producers will provide at various prices. Market Economy The Market and Prices

35. Demand and supply work together. When the quantity demanded and the quantity supplied meet, the price is called the equilibrium price . Market Economy The Market and Prices

36. Figure 2.2 VISUALIZING DEMAND AND SUPPLY Remember these two points: (1) The demand curve always falls left to right on a graph, and (2) the supply curve always rises from left to right on the graph. Q.10 How many CDs will be demanded at $16 a piece? Q11. How many CDs will be supplied at $18 a piece?

37. Capitalism , or private enterprise, is a market economy system. In a capitalist system, resources are privately owned. Market Economy The Market and Prices

38. In a capitalist system, the primary role of government is to support the marketplace by removing obstacles such as trade barriers. Market Economy The Market and Prices

39. A market economy offers incentives, such as competition and the profit motive, to produce more. The profit motive is the reward for taking a risk that encourages people to start businesses. Market Economy The Market’s Motivations

40. A market economy provides the individual with the freedom to choose from many different competing products, and the freedom to start a business or choose a career. Market Economy The Market’s Motivations

41. The problem with a market economy is that those who do not have the wanted job skills do not get an income. Market Economy The Market’s Motivations

42. Another problem in a market economy is that sometimes one or two businesses control the market, thus leading to higher prices and lower quality products. Market Economy The Market’s Motivations

43. Command Economy In a command economy a central authority makes the key economic decisions. A command economy is also called a planned or managed economy.

44. Command Economy There are two types of command economies. In a strong command economy, such as communism , the state makes all the economic decisions.

45. Command Economy In a moderate command economy, also called socialism , there is some form of private enterprise. The primary advantage of a command economy is that it guarantees everyone an equal standard of living.

46. Command Economy There are some disadvantages to a command economy. Since the state provides all goods and services in a strong command economy, there is little choice of what to buy.

47. Command Economy Another disadvantage to the command economy is that there is no incentive for entrepreneurship when you can’t run your own business.

48. Mixed Economy Most nations have a mixed economy , a combination of a market and command economy. The state takes care of people’s needs while the marketplace takes care of people’s wants.

49. Graphic Organizer What should be produced? Basic Economic Questions Graphic Organizer MARKET ECONOMY Economic decisions are made in the marketplace according to the laws of supply and demand. How should it be produced? Who should share in what is produced? COMMAND ECONOMY Government makes all key economic decisions. MIXED ECONOMY Combination market and command economy.

50. Fast Review Q12. Summarize how economic decisions in the market economy are made. Q13. Compare the types of economic systems. Q14. What are the advantages and disadvantages of a command economy and a market economy?

51. Q15. What are some examples of renewable and nonrenewable resources? Q16. Some stoves use corn as a heating fuel. Based upon the cost savings, do you think the price of corn is high or low?

52. Q17. Why do you think other countries are interested in buying corn-burning appliances? Q18. In a command economy, how might a limit on the availability of corn affect the people?

53. Graphs are a quick and useful way to visually communicate information. Interpreting Line Graphs Business Building Blocks Line graphs often show change over a period of time.

54. The left side of a graph is the vertical axis . Interpreting Line Graphs Business Building Blocks The bottom of the graph is the horizontal axis .

55. Both axes display numbers and a label indicating what the numbers represent. Interpreting Line Graphs Business Building Blocks Dots on the graph show numerical information.

56. When the dots on the graph are connected, they form a line whose location and direction reveals information about change through time. Interpreting Line Graphs Business Building Blocks

60. pp. 18-33 End of Chapter 2 Economic Resources and Systems