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Splash Screen
Chapter Menu
Chapter Introduction
Section 1: How Economic Systems Work
Section 2: Making Economic Decisions
Visual Summary
Chapter Intro 1
As American citizens, we live in a land of economic opportunity. Our economy provides us with a great variety of jobs, goods, and services. The United States has a free enterprise system under which consumers and producers make the major economic decisions. We can contribute to the nation’s economic success by taking advantage of economic opportunities.
Chapter Intro 2
Section 1: How Economic Systems Work
An economic system is the way a society organizes the production and consumption of goods and services. Economics is the study of how we make decisions in a world in which resources are limited as well as the study of how things are made, bought, sold, and used.
Chapter Intro 2
Section 2: Making Economic Decisions
An economic system is the way a society organizes the production and consumption of goods and services. Economic decision making requires us to understand all the different costs and all the benefits of a choice.
Section 1-Main Idea
Guide to Reading
Big Idea
An economic system is the way a society organizes the production and consumption of goods and services.
Section 1-Key Terms
Guide to Reading
Content Vocabulary
• need
• want
• economics
• microeconomics
• macroeconomics
• economic model
• economic system
• resource
• scarcity
Section 1-Key Terms
Guide to Reading
Academic Vocabulary
• rational
• capable
• generate
A. A
B. B
Section 1-Polling Question
Do you agree that understanding economics is an important responsibility of all citizens?
A. Agree
B. Disagree
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Section 1
Economic Choices
Economics is the study of how we make decisions in a world in which resources are limited as well as the study of how things are made, bought, sold, and used
Section 1
Economic Choices (cont.)
• Citizens must make economic choices every day.
• Needs and Wants:
– Needs are required, such as food and shelter
– Wants make life more comfortable and enjoyable, like vacations
– Choices occur because resources cannot meet all wants and needs.
Section 1
• Economics:
– Studies decisions made in a world of limited resources
– Studies how things are made, bought, sold, and used
Economic Choices (cont.)
Section 1
• Economic models include microeconomics and macroeconomics
– Microeconomics focuses on the small picture
– Macroeconomics focuses on the big picture
Economic Choices (cont.)
• United States functions on free enterprise capitalism
A. A
B. B
C. C
D. D
Section 1
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Which of the following economic choices would you be more likely to make?
A. buying a CD
B. paying for math tutoring
C. saving money in a bank
D. buying an expensive meal
Section 1
The Problem of Scarcity
The limits on, or scarcity of, resources forces people to make careful economic choices.
Section 1
The Problem of Scarcity (cont.)
• A scarcity of resources forces people to make economic decisions.
• No country has enough resources to produce all necessary goods and services.
Choices All Societies Face
Section 1
• Countries have choices:
– What to produce must balance needs
– How to produce must balance problems and benefits
– For whom to produce and how to distribute
The Problem of Scarcity (cont.)
A. A
B. B
Section 1
Do you agree that when resources are limited, choosing to produce weapons for defense over improving facilities for those who are too old or sick to work is acceptable?
A. Agree
B. Disagree
0%0%
Section 2-Main Idea
Guide to Reading
Big Idea
An economic system is the way a society organizes the production and consumption of goods and services.
Section 2-Key Terms
Guide to Reading
Content Vocabulary
• trade-off
• opportunity cost
• marginal cost
• marginal benefit
• cost-benefit analysis
Academic Vocabulary
• previous
• compute
• diminish
A. A
B. B
Section 2-Polling Question
Have you ever had to give up one thing you wanted in order to get another? Was the choice worth it?
A. Yes
B. No
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Section 2
Trade-Offs
Economic decision making requires us to understand all the costs and all the benefits of a choice.
Section 2
Trade-Offs (cont.)
• People must understand the costs and benefits of economic choices in order to best make those choices.
• A trade-off requires someone to decide to do one thing rather than another
– Individuals make trade-offs
– Trade-offs made on larger scales—families, businesses, societies
Section 2
• Opportunity cost is second best use of time or money after choosing one thing over another
– Includes money, time, inconveniences, and so on
Trade-Offs (cont.)
A. A
B. B
Section 2
Do you agree that almost all decisions involve trade-offs?
A. Agree
B. Disagree
0%0%
Section 2
Costs and Revenues
Economists have developed ways of measuring different types of costs and revenues.
Section 2
Costs and Revenues (cont.)
• There are ways to measure different types of costs and benefits.
• Types of Costs:
– Fixed costs—do not change, have to be paid
– Variable costs—change based on what is produced
Section 2
Costs and Revenues (cont.)
– Total costs—both fixed costs and variable costs
– Marginal cost—cost of producing one additional unit of output
Section 2
• Types of Revenue:
− Total revenue equals number of units sold multiplied by average price per unit
− Marginal revenue—revenue made by selling one extra unit of a product
Costs and Revenues (cont.)
Section 2
• Marginal benefit—an additional benefit associated with an action
• Cost-benefit analysis requires rational economic decision making
Costs and Revenues (cont.)
– Considers the benefits of making a choice over the costs
Cost-Benefit Analysis
A. A
B. B
Section 2
Do you think the benefits of your decisions usually outweigh the costs?
A. Yes
B. No
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VS 1
Economics
Economics is the study of how we make decisions in a world in which resources are limited. Microeconomics deals with decision making by small units such as individuals and firms. Macroeconomics deals with the economy as a whole and decision making by large units such as government.
VS 2
Making Economic Decisions
• What to produce
• How to produce
• For whom to produce
Individuals satisfy their unlimited wants in a world of limited resources by making choices.
The need to make choices arises because of scarcity, the basic problem in economics.
Every society must answer the three basic economic questions:
VS 2
Making Economic Decisions
Individuals are forced to make trade-offs every time they use their resources in one way and not in another.
The cost of making a trade-off is known as opportunity cost—the value of the next best alternative that has to be given up to do the action that is chosen.
VS 3
Costs and Revenue
Four important measures of cost are total cost, fixed cost, variable cost, and marginal cost.
A key measure of revenue is marginal revenue, which is the change in total revenue when one more unit of output is sold.
VS 4
Economic Systems
Every type of economic system must answer the three basic economic questions.
The United States has a free enterprise, or capitalist, economic system.
Figure 1
Figure 2
TIME Trans
DFS Trans 1
DFS Trans 2
Vocab1
needs
requirements for survival, such as food, clothing, and shelter
Vocab2
wants
things we would like to have, such as entertainment, vacations, and items that make life comfortable and enjoyable
Vocab3
economics
the study of how individuals and nations make choices about ways to use scarce resources to fulfill their needs and wants
Vocab4
microeconomics
the economic behavior and decision-making by individuals and small businesses
Vocab5
macroeconomics
economic behavior and decision-making by government or whole industries or societies
Vocab6
economic model
simplified representation of the real world that economists develop to describe how the economy behaves and is expected to perform in the future
Vocab7
economic system
nation’s way of producing things its people want and need
Vocab8
resource
the money, people, and materials available to accomplish a community’s goals; wealth
Vocab9
scarcity
not having enough resources to produce all of the things we would like to have
Vocab10
rational
reasonable
Vocab11
capable
having ability or competence
Vocab12
generate
to bring into existence
Vocab13
trade-off
the alternative you face if you decide to do one thing rather than another
Vocab14
opportunity cost
the cost of the next best alternative use of time and money when choosing to do one thing rather than another
Vocab15
marginal cost
the additional or extra opportunity cost associated with an action
Vocab16
marginal benefit
the additional or extra benefit associated with an action
Vocab17
cost-benefit analysis
economic model that compares the marginal costs and marginal benefits of a decision
Vocab18
previous
coming before or prior
Vocab19
compute
to determine or calculate
Vocab20
diminish
to lessen or reduce
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