Chapter 13

What is an Economy?

Why do societies have economies?

• Basic wants• Food• Water• Shelter

Wants• Wants are influenced

by our society– Live: house or

apartment

• Our wants change– Little to now to older

Factors of Production• The resources people

have for producing goods and services to satisfy their wants

• Three basic factors of production:

• LAND

• LABOR

• CAPITAL

LAND• The natural

resources that are needed to help produce goods and services

• Water

• Air

• Wildlife

LABOR• Time and energy

used• The mental and

physical efforts applied to the production of goods and services.

• Labor will include the knowledge and skills used in job

• The human resource• Payments for labor services

are called wages

CAPITAL • Anything produced in an economy that is used to produce other goods and services

• Tools, machinery, buildings used to create goods

• Goods used as capital are CAPTIAL GOODS

The Wants and Satisfaction Chain

#1. WANTS

• You want to eat spaghetti for dinner.

#2. PRODUCTIONUSE OF LLC

• The people who combine the resources of LLC

• Farmers use soil, water, seeds farm machinery

• Labor used to produce the wheat

#2. PRODUCTION

• Making the pasta• Wheat processed

into flour• Rolled into the

pasta you want to eat

# 3. DISTRIBUTION• Now the pasta is

made how do you get it?

• It is sold to the grocery store

• You go to the store and purchase it

#4. CONSUMPTION

• Now you can buy it, cook it and eat it.

#5. SATISFACTION

• You want to eat it for dinner next week too.

Making Choices

• One part of making economic decisions IS what BENEFITS will you receive from your choice?

COSTS

• What is the cost of your choice?

• Opportunity cost • is the highest valued

benefit given up when a choice is made

• Is the benefit greater than the cost?

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

Chapter 13.3

The Three Types of Economies

Traditional Economy• Basic economic

decisions are made according to long-established patterns of behavior that are unlikely to change

• Customs passed from elders to youth

• Few remain in the world

• Tribal societies in Central and South America, Africa

A Kavango vendor selling both conventional and traditional vegetables. This indicates the important role traditional food still plays in the nourishment of the people of the Kavango. Despite conventional vegetables being grown and sold widely, traditional bush vegetables arre still found in every market.

Command Economy• The government or central authority owns or controls the factors of production and make that basic economic decisions

• Farms and stores own by government

• Gt can set wages and decide who will work which jobs

• Communist Soviet Union or Egyptian Pharaohs

Market Economies• A system in which private individuals own the factors of production and are free to make their own choices about production, distribution and consumption

• No one person or groups runs a market economy

• Everyone takes part, not one person runs a market economy

• Local farmers market, New York Stock Exchange

Vocabulary• Profit

– The difference between the total cost of production and the total revenues received from buyers.

• Invest– To use your money to help

a business get started or grow

• Free enterprise– People in a market

economy are free to undertake economic activities with little to no control from gt

• Capitalism– How people use capital to

produce goods and provide services

Mixed Economy• Mixture of the

three basic systems