Chapter 2: Economic Resources and Systems

Economic Resources

Making Economic Decisions

Resources are the items that go into the making of goods and services.
This lack of resources is called $scarcity$ . * The principle of scarcity states that there are limited resources for satisfying unlimited wants and needs.
Because resources are in limited supply, to have one thing may mean giving up something else.
When dealing with scarcity, it is important to think of the best way to use the item that is in short supply.

Factors of Production

$Factors of production$ are all the economic resources necessary to produce a society’s goods and services * There are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources.
$Natural Resources$ are raw materials from nature that are used to produce goods. * Natural resources can often be processed in various ways to create goods.
The economy of many countries is primarily based on its natural resources.
Some natural resources, such as wheat and cattle, are renewable * Other resources are limited, or nonrenewable * The amount of natural resources available to a society has a direct effect on its economy.
$Labor resources$ are people who make the goods and services for which they are paid. * Labor can be skilled or unskilled, physical or intellectual.
$Capital resources$ are the things used to produce goods and services, such as buildings, materials, and equipment. * They are also called capital goods. * They include delivery trucks, supermarkets, cash registers, and medical supplies.
$Entrepreneurial resources$ are used by the people who recognize opportunities and start businesses. * $Entrepreneurship$ is the process of recognizing a business opportunity, testing it in the market, and gathering the resources necessary to start and run a business. * An $entrepreneur$ is an individual who undertakes the creation, organization, and ownership of a business. * He or she accepts the risks and responsibilities of business ownership to gain profits and satisfaction
Entrepreneurial resources are different from labor resources, even though people provide both.
Entrepreneurial resources are individuals who start and direct businesses to produce goods and services to satisfy needs or wants.
Labor resources are people who produce the goods or services.

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Economic Systems

Basic Economic Questions

$Economics$ is the study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices
Societies make economic decisions about how to meet the needs of people by answering three 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 called an opportunity cost * How should it be produced? * The methods and labor used as well as the quality of items produced are important factors. * Who should share in what is produced? * The amount of income people receive determines how many goods and services they can have.

Different Types of Economies

$Economic systems$ are the methods societies use to distribute resources. * Different economic systems answer the three basic economic questions in different ways.
Two basic types of economic systems are a market economy and a command economy. * A $market economy$ is an economic system in which economic decisions are made in the marketplace. * The marketplace is where buyers and sellers meet to exchange goods and services, usually for money. * A market economy can also be called a private enterprise system, the free enterprise system, or capitalism. * In a market economy, resources are privately owned. * The government works to promote free trade and prevent unfair trade practices. * There is an uneven distribution of income.
In a market economy, individuals are responsible for being informed and making careful decisions. * There is a relationship between price, supply, and demand. * The price for an item is determined through the interactions of supply and demand.
$Price$ is the amount of money given or asked for when goods and services are bought or sold.
$Supply$ is the amount of goods and services that producers will provide at various prices.
$Demand$ is the 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 consumers will buy. * The $equilibrium price$ is the point at which the quantity demanded and the quantity supplied meet.
In a market economy, competition is observed.
Profit motive is the desire to make a profit, and profit is the reward for taking a risk and starting a business. * A $command economy$ is an 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. * Goods that are not considered necessities are often unavailable. * Prices are controlled by the state. * Highly skilled workers may earn the same wages as low-skilled workers.
In a moderate command economy, also called socialism, there is some form of private enterprise.
Most nations have a mixed economy in which private ownership of property and individual decision making are combined with government intervention and regulations.
A $mixed economy$ is an economy that contains both private and public enterprises. * A mixed economy combines elements of capitalism and socialism.