Chapter 1: Basic Economic Concepts

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A Look at Wants and Needs

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Wants and Needs Drive the Economy

• Wants and needs determine what products and services businesses provide.
  • Wants are things that you do not have to have to survive, but would like to have.
  • Needs are things that you must have in order to survive.
  • The basic needs of people include food, water, shelter, and clothing.
• A group of people may share the same wants.
  • A business may want an advanced computer system.
  • Although these wants are shared, they are considered private wants
  • Individual people also have private wants.
• Public wants are wants that are widely shared by many people.
  • Examples include highways, public libraries, and parks.
  • Local, state, and federal governments satisfy public wants.
• Businesses provide goods and services to satisfy wants and needs.
  • Goods are physical products.
  • Services are tasks that businesses perform for consumers.

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How Resources Limit the Ability to Satisfy Wants and Needs

• The more money you make, the more goods or services you can buy.
• However, few people have enough resources to satisfy all of their wants.
• Resources are items that people can use to make or obtain what they need or want.
  • Resources limit the number of needs and wants people can satisfy.
• To make the best use of limited resources, determine what your needs are and satisfy them first.

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Making the Most of Your Resources

• You can make the most of your resources by making the best choices about what to buy.

• The decision-making process can help you make good choices.

  • It helps you to identify and consider your various alternatives and their consequences before you make a final decision.
  1. Identify the situation
  2. Identify possible courses of action
  3. Determine the pros and cons
  4. Make a decision
  5. Evaluate your decision

• The longer a decision will affect your life, the more you need to evaluate your options and consider the possible consequences.

• Businesses must make thoughtful decisions that are consistent with their goals.

• Most companies allow managers to make routine decisions independently.

• Higher-level business managers usually make more important decisions that affect the future of their companies.

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Business Activities

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How to Define Business

• Business is any commercial activity that seeks profit by providing goods and services to others in exchange for money.
• Profit is the money left over after a business has paid the cost of providing its goods and services.
• Businesses provide consumers and other businesses with necessities, such as food, clothing, housing, medical care, and transportation.
  • Businesses also provide goods and services that make life easier and better.
• For entrepreneurs, owning a business also offers an opportunity to earn a good living.
• Profit is the reward for satisfying the needs and wants of consumers and businesses.
• The wealth created by businesses benefits the entire community because businesses pay taxes and provide jobs.
• Companies thrive on competition, the contest between businesses to win customers.
  • Competition is possible because companies have the freedom to produce the products they think will be the most profitable.
• The result is that goods and services are produced and sold at the lowest possible cost.
• For companies to successfully compete in the global economy, they must offer quality products with outstanding service at competitive prices.

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Business Activities

• Some business activities are:
  • identify opportunities for products or services;
  • evaluate the demand for products or services;
  • obtain start-up money and operating capital;
  • manage the production of goods and/or services;
  • market the goods and/or services;
  • keep records to satisfy government requirements and improve processes.
• Some business activities should be supported by market research.
• Market research is the act of gathering and analyzing information about the wants, needs, and preferences of consumers in a certain market.
  • Market research provides information that can help a business identify opportunities, analyze demand, and respond to consumer demand for goods and services.

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Business and You

• A consumer is a person who uses goods or services.
• Businesses also affect consumers when they modify or discontinue products.
• The decision to stop manufacturing products is often because there is a decreasing demand for them.
• Businesses affect you as a wage earner.
• Consumers also affect businesses.
• Consumers decide what kinds of goods and services they want and where they will buy them.
• To avoid failure, a business can modify its products, services, and business practices to satisfy consumers.

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