Ch. 2 Notes

Chapter 2
Economic Resources and Systems
Economic Resources
Making Economic Decisions
 Scarcity – The inability to satisfy all of
everybody’s wants .
 Individuals, businesses, and countries face a
lack of resources
 Principle of Scarcity – there are limited
resources for satisfying unlimited wants and
Factors of Production
 All economic resources necessary to produce a
society’s goods and services
Economic Resources
Factors of Production
Natural Resources
Raw Materials from nature that are used to
produce goods
Trees, water, grains, cattle, coal
Renewable Resources- can be reproduced
Wheat and cattle
Non Renewable Resources- Limited
Ex. Coal, iron, oil
Labor Resources
People who make the goods and services for
which they are paid.
Labor can be skilled or unskilled, physical or
Economic Resources
Capital Resources
Things used to produce goods and services (Capital
Tractor, Delivery Truck, Computers, Medical Supplies
Entrepreneurial Resources
Individuals who start and direct businesses to produce
goods and services to satisfy needs and wants
Used by people who recognize opportunities and start
Entrepreneur – An individual who undertakes the
creation, organization, and ownership of a business
Entrepreneurship- The process of recognizing a
business opportunity, testing the market and gathering
the resources necessary to start and run a business.
Why do all nations face the problem of
2. Identify one similarity and one
difference between labor and
entrepreneurial resources?
3. Describe the four factors of production
Economic Systems
Economics – The study of how individuals and groups of
people strive to satisfy their needs and wants by making
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 the opportunity cost.
 How should it be produced?
○ Methods and labor used as well as the quality of the items
 Who should share in what is produced?
○ In most societies people can have as many goods and services
as they can afford to buy
○ The amount of income they receive determines how many goods
and services they can have.
Different Types of Economies
Economic System
 The methods societies use to distribute resources.
Command Economy
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.
Higher skilled workers earn the same as low-skilled
Socialism – Moderate Command Economy
The state owns the major Resources
Mixed Economy
An economy that contains both private and public
Combines elements of both capitalism and socialism.
Different Types of Economies
Market Economy
Economic system where economic
decisions are made in the marketplace.
Marketplace – Where buyers and sellers
meet to exchange goods and services .
Also called Private enterprise system, free
enterprise system, or capitalism.
Different Types of Economies
Market Economy continued:
Relationship between Price, Supply and Demand
Price – Amount of money given or asked for when
goods and services are bought and sold
Supply – Amount of goods and services that
producers provide at a various price
Demand – 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 the consumers will
Equilibrium Price – Is the point at which the
quantity demanded and the quantity supplied
meet. At any other price you would either have a
surplus or shortage
Typical Demand/Supply Curve
Demand and the Price Effect
Price Elasticity of Demand- is a measurement of
the impact of the price effect. It indicates a buyer’s
eagerness to buy a good or service.
• Elastic vs. Inelastic Demand
Demand and the Price Effect
Factors that Affect the Elasticity of Demand:
- Availability of Substitutes
- Percentage of Budget
- Time
Elastic Demand
Inelastic Demand
Many Substitutes
Few Substitutes
Expensive(require High % of
Time to Plan or Adjust
Must Buy Now
How does a market system decide
what will be produced?
In a market system, what determines
how many goods and services an
individual can buy?
Some nations can produce more
goods with fewer workers than other
countries that have more workers.
How can that be true?

similar documents