© 2011 South-Western | Cengage Learning

Our Global Economy

2-12-1 Economics and Decision Making

2-22-2 Basics of Economics

2-32-3 Economic Systems

2-42-4 Achieving Economic Development

2-52-5 Resources Satisfy Needs

CHAPTER 2

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2LESSON 2-1

Economics and Decision Making

GOALSGOALSDescribe the basic economic

problem.List the steps of the decision-

making process.

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The Basic Economic Problem

Scarcity refers to the limited resources available to satisfy the unlimited needs and wants of people.

Economics is the study of how people choose to use limited resources to satisfy their unlimited needs and wants.

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Making Economic Decisions

Coping with scarcityMaking choices

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The Decision-Making Process

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2LESSON 2-2

Basics of Economics

GOALSGOALSDescribe how the market sets

prices.Explain the causes of inflation.

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Price-Setting Activities

Supply is the relationship between the amount of a good or service that businesses are willing and able to make available and the price.

Demand is the relationship between the amount of a good or service that consumers are willing and able to purchase and the price.

Market price is the point at which supply and demand cross.

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2Market Price Is Set by Supply and Demand

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Changing Prices

InflationDemand-pull inflationCost-push inflation

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2LESSON 2-3

Economic Systems

GOALSGOALSName the three main factors of

production.Understand how different countries

make economic decisions.

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Economic Resources Satisfy Needs

Natural resourcesHuman resourcesCapital resources

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Natural Resources

Also known as land, these resources are the raw materials that come from the earth, from the water, and from the air. Iron ore, gold, silver, agricultural products, rivers, and oxygen are examples of natural resources.

These items are used in the production of goods and services consumed by individuals, businesses, and governments.

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Human Resources

Also known as labor, these resources are the people who work to create goods and services.

While technology has changed or eliminated certain tasks previously performed by people, new types of work are continually being created.

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Capital Resources

Also called capital, these resources include buildings, money, equipment, and factories used in the production process.

These items are expensive and are used over several years by business organizations.

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Economic System

The economic choices of a country relate to three basic questions:

1.1.What goods and services are to be produced?

2.2.How should the goods and services be produced?

3.3.For whom should the goods and services be produced?

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Types of Economic Systems

Command EconomiesMarket Economies

Private propertyProfit motiveFree, competitive marketplace

Mixed Economies

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2LESSON 2-4

Achieving Economic Development

GOALSGOALSDescribe the factors that affect

economic development.Identify the different levels of

economic development.

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Development Factors

Literacy levelTechnologyAgricultural dependency

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Types of Development

Industrialized countriesLess-developed countriesDeveloping countries

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Levels of Economic Development

Low literacyLimited

technologyAgricultural or

mining economy

Improving literacy

Improving technology

Decreasing dependence on agriculture or mining

High literacyModern

technologyIndustrial

economy

Less-Developed Country

Developing Country

Industrialized Country

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2LESSON 2-5

Resources Satisfy Needs

GOALSGOALSDiscuss economic principles that

explain the need for international trade.

Identify various measures of economic progress and development.

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The Economics of Foreign Trade

Absolute advantage exists when a country can produce a good or service at a lower cost than other countries.

Comparative advantage exists when a country can produce a good or service with more efficiency than other countries.

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Measuring Economic Progress

Measure of ProductionGross domestic product (GDP)Gross national product (GNP)

International Trade ActivityBalance of tradeForeign exchange rateForeign debt

Other Economic MeasurementsConsumer price index (CPI)Unemployment rate