People make choices
about how to use
limited resources,
decide the ownership of
resources, and structure
markets for the
distribution of goods
and services.
There is never enough to match the total of what everyone
wants! Scarcity forces everyone to make choices about
everything from groceries, houses, and gasoline to the luxury
items we purchase.
Resources are factors of production that are used in the production of
goods and services. Types of resources are:
- the renewable and nonrenewable gifts of nature like
land, water, animals, minerals, trees, climate, soil, fire, seeds, grain
and fruits.
- the knowledge, skills and abilities possessed by people.
– tools and equipment like factories, warehouses, roads,
bridges, machinery, ports, dams, and tools; also called capital
goods. (Investment money is also a capital resource.)
– person who has the ideas for new
businesses
Choice is selecting an item or action from a set of possible
alternatives. Individuals must choose/make decisions about desired
goods and services because these goods and services are limited.
Opportunity Cost is what is given up when a choice is made – the
highest valued alternative is forgone (in the past). Individuals must
consider the value of what is given up when making a choice.
 Example: If you decide your best choice is attending college to
increase your future earning power, the opportunity cost is the value
to you of the
you could take instead during those same
years. That would probably include not only the
, but
the
you would gain in the job during those years.
 Before making any decision, it is important to consider the
opportunity cost.
Price – is the amount of money exchanged for a good or service.
Interaction of supply and demand determines price. Price determines
who acquires goods and services.
Incentives – are things that incite or motivate. Incentives are used to
change economic behavior.
are incentives to encourage people to shop and
spend money at businesses.
are an incentive for businesses to make better products.
motivate employees to do their best.
encourage students to study and get good grades.

is the amount of
a good or service that
are willing
and able to
at a
certain price.
is the amount of a
good or service that
are willing
and able to
at a
certain price.
Production – is the combining of human, natural, capital, and
entrepreneurship resources to make goods or provide services.
Resources available and consumer preferences determine what is
produced.
Consumption – is using goods and services. Consumer preferences
and price determine what is purchased.
 Every country must develop an economic system to
determine how to use its limited resources.
 The key factor in determining the type of economy a
country has is the extent of government involvement.
 The three basic questions of economics:
will be produced?
will produce it?
will it be produced?
 Economic decisions
are based mainly on
whatever was done in
the past.
 People often do the
same type of work as
their parents and
grandparents,
regardless of ability or
potential.
– people
own and control their own personal/business property and land
– businesses base most decisions on what will
create the largest profit
– when sellers try to attract buyers away from
other sellers by producing better products at lower prices
– businesses make and sell what
customers want and are willing to buy
– people have the freedom to make their
own economic choices
 Farms
 Natural resources
 Businesses
 Government sets prices
 Government decides what gets produced
 Government decides who to sell products to
 Individuals and businesses are owners and decision
makers for the
.
 Government is owner and decision maker for the
.
 Government’s role is greater than in a free market
economy but less than in a command economy.
.
Mixed Economy - combination of a free
market private sector and government
controlled public sector
Public Sector
Private Sector
Public Sector (Government)
Private Sector (Free Market)
Federal, state, and local governments
make the decisions.
Individuals and businesses
make the decisions.
Examples: public schools, roads, defense,
parks, police, fire, etc.
Examples: factories, farms, stores,
houses, apartments, etc.
 The U.S. is primarily a free market economy, but
because there is some government involvement it is
characterized as a mixed economy.
Mixed Economy - combination of a free market
private sector and government controlled
public sector
Public Sector
Private Sector
Markets are generally allowed to operate without undue
interference from the government. Prices are determined
by supply and demand as buyers and sellers interact in the
marketplace.
Let the buyer
beware!
Government intervenes in a market economy when the
perceived benefits of a government policy outweigh the
anticipated costs.
Individuals and businesses have the right to own real estate
and personal property as well as the means of production
without undue interference from the government.
Profit is earnings after all expenses have been paid –
businesses base most decisions on what will create the largest
profit.
If Jane's Health Food
Shop sells $12,000
worth of groceries this
month, and has total
costs of $10,000 the
same month, how
much profit did Jane's
company earn?
Rivalry between producers and/or between sellers of a
good or service usually results in better quality goods and
services at lower prices.
 Consumers determine
through purchases what
goods and services will be
produced.
 Government involvement
in the economy is limited.
 Most decisions regarding
the production of goods
and services are made in
the private sector.