WHAT IS AN ECONOMY?

Economy or Economic System

The way a nation makes choices. These choices

involve how the nation will use its

resources to produce and

distribute goods and services.

Resources

All things used in producing goods and services

Factors of Production – the technical term economists use for resources

Resource 1 – LandEverything on the earth

in its natural state / the earth’s natural resources

Resources Include:Everything contained in

the earth or found in the sea

Coal and crude oil are examples

A lake and all the living things in the lake are also examples

Resource 2 – Labor

All the people who work in the economy

Labor includes:Full and Part-time

WorkersBoth the Public and

the Private sector

Resource 3 - CapitalThe money needed to start and

operate a businessThe goods used in the production

processExamples are:

FactoriesOffice BuildingsComputersRaw materials that are processed

into a more useful form (lumber, steel)

Resource 4 - Entrepreneurship

The skills of the people willing to risk their time and money to run a business

Entrepreneurs organize the other factors of production to create the goods and services desired in an economy

InfrastructureThe physical development of

a country Things necessary for

production and distribution of goods and services

Parts of the infrastructure includeRoadsPortsSanitation FacilitiesUtilities

Scarcity

The difference between wants and needs and the resources available

to meet these needs is called Scarcity.

Nations have unlimited wants and needs but limited resources –

Scarcity forces the nations to make economic choices.

The Basic Economic Questions

Nations must answer 3 basic economic questions when deciding to use their limited resources

The way nations answer these questions define their economic systemWhat goods and services should be

produced?How should the goods and services be

produced?For whom should the goods and services

be produced?

What Should Be Produced?

Consumers decide what is to be produced through purchases made in the market place.

Items that satisfy the customer’s needs and wants are purchased making the products successful

Items that do not satisfy the needs and wants of the consumer are not purchased and are not successful

How Should Goods and Services Be Produced?

How products will be produced is left up to the business

Businesses must be competitive

Businesses must produce quality products at lower prices than their competitors

Businesses must find the best way to produce goods and services

Businesses must also find the best way to encourage customers to purchase their products

For Whom Should Goods and Services Be Produced?

Those individuals with the most money are able to purchase more goods and services

To obtain money individuals work and invest