GO # 14 Economic Concepts Scarcity: is the inability to satisfy Resources: are the factors of all wants at the same time. All production that are used in the resources and goods are limited. production of goods and services. This requires that choices be Types of resources are natural, made. human, capital, and entrepreneurship Choice: is a selection of an item or action Opportunity Cost: is what is given up from a set of possible alternatives. when a choice is made –i.e. the highest Individuals must choose or make valued alternative forgone. decisions about desired goods and Individuals must consider the value of services because these goods and services what is given up when making a are limited. choice. Incentives: are things that incite Price: is the amount of money or motivate. Incentives are used exchanged for a good or service. to changed economic behavior Interaction of supply and demand determines price. Price determines who acquires goods and services. Production: is the combining of human, Consumption: is the using of natural, capital, and entrepreneurship goods and services. Consumer resources to make goods or provide preferences and price determine services. Resources available and what is purchased and consumed. consumer preferences determine what is produced. Supply: is the amount of a good or Demand: is the amount of a good service that producers are willing or service that consumers are and able to sell at a certain willing and able to buy at a certain price(Interaction of supply and price. (Interaction of supply and demand determines price) demand determines price)
Types of EconomiesEvery country m ust develop an economic system to determine how to use its limited productiveresources. The key factor in detemrine the type of economy is the extent of __governmentinvolvement_. The type of economy a country has answer three basic questions. • What will be produced? • Who will produce it? • For whom will it be produced? Tradiditonal Economy Free Market Economy • Economic decisions are based on • Private ownership of custom and historical precedent property/resources • Profit motive • People often perfomr the same type of • Competition workas their parents and grandparents, regardless of ability or • Consumer sovereignty potential • Individual choice • Minimal government involvment in the economy Command Economy Mixed Economy • Central ownership (usually by • Individuals and businesses as owners government) of property/resources and decision makers for the private sector • Government as owner and decision • Centrally-planned economy maker for the public sector • Government role is greater thanin a free market economy and less than in a command economy • Lack of consumer choice • Most economies today (including the United States) are mixedd economiesNo country relies exclusively on markets to deal with the economic problem of scarcity.