The document discusses how economic decisions are made. It provides examples of individuals making choices between alternatives and incurring an opportunity cost. It then defines four main types of economic systems - command economy, market economy, traditional economy, and mixed economy - and outlines their key characteristics in terms of who makes decisions about what to produce, how to produce it, and for whom. The document concludes by explaining that individuals and businesses face economic choices daily due to scarcity of resources and the need to consider opportunity costs of alternatives.

1. HOW
ECONOMIC
DECISIONS
ARE MADE
PREPARED BY: MR. LANCE MERCADO

2. READ...
CHOOSE BETWEEN
ALTERNATIVES
“Stephanie, weren’t you thinking of buying a new
MP3 player last week?” her dad asked. “Yes, Dad, I
was.” Stephanie replied, “but if I buy the new
shoes I want for the Winter Dance, I won’t have
enough money to buy the MP3 player now.”
“You’ve just learned a lesson about opportunity
cost is the value of the item you give up – in this
case, the MP3 player,” her dad explained. “I
understand, Dad. But if you took this opportunity
to buy the shoes for me, then I wouldn’t have an
oppotunity cost, would I?”

4. ECONOMIC SYSTEMS
Different economic systems exist throughout the
world. However, all economies must answer three
basic questions.
1. What goods and services will be produced?
2. How will the goods and services be produced?
3. For whom will the goods and services be
produced (in other words, whose needs and
wants will be satisfied)?

5. ECONOMIC SYSTEMS
1. COMMAND ECONOMY
- The government determines what,
how and for whom products and
services are produced.
- Because the government is making
the decisions, there is very little
choice for consumers in what is
available.

6. ECONOMIC SYSTEMS
2. MARKET ECONOMY
- Are about personal choices, individuals
and businesses decide what, how, and
for whom goods and services are
produced.
- Entrepreneurship thrives in a market
economy.
- Decisions about production and
consumption are made by millions of
people, each acting alone.

7. ECONOMIC SYSTEMS
3. TRADITIONAL ECONOMY
- Goods and services are produced the
way they have always been produced.
- Is used in countries that are less
developed and are not yet participating in
the global economy.
- Most of what is produced is consumed,
and what is left over is sold or traded
with people who live in nearby
communities.

8. ECONOMIC SYSTEMS
4. MIXED ECONOMY
- When elements of the command and
market economies are combined, it
is called a mixed economy.
- Often results when a country shifts
away from command economy
toward a market economy but still
has government involvement in the
marketplace.

9. ECONOMIC CHOICES
Individuals and businesses are faced with
economic choices everyday. Decisions
about needs and wants must be made.
Economic choices – is the process of
choosing which needs and wants , among
several, you will satisfy using the
resources you have.
Two factors commonly enter into economic
decision making – scarcity and opportunity
cost.

10. SCARCITY
- Occurs when people’s needs and
wants are unlimited and the resources
to produce the goods and services to
meet those needs and wants are
limited.

11. OPPORTUNITY COST
- Is the value of the next-best
alternative – the one you pass up.

12. ASSIGNMENT..
What are the Functions of
Business?
1. Production
2. Marketing
3. Management
4. Finance