Any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the

alternatives

You just won the power ball lottery jackpot of $50,000,000. What do you buy with your money? With a partner, make a list of everything you would do with the money.

Wants-something you would like to have in order to feel better about how you live

Needs-something you have to have in order to live

Scarcity is the unlimited human wants and needs with limited resources Scarcity is the fundamental problem in economics
In society, we cannot have everything we

want Therefore we must make choices as a individuals and as a society based on incentives, costs and benefits analysis, etc.

Opportunity Cost: the value of the next best alternative that you gave up.
I decide to go to college right after high school as

a full time student.

What is my opportunity cost?

Text Book Definition: The study of how people use limited resources to produce and distribute goods and services and satisfy unlimited wants and needs.
Simple definition: study of people trying to get what they want and need

Unlimited Wants

Scarcity

Limited Resources

Scarcity forces all countries to answer these 3 questions

Scarcity leads to conflict over policy

3 Basic Questions
What to produce? How to produce it? Whom to produce it for?

Society must decide what to produce with its limited resources. For example, society may have to choose whether to produce goods for defense or services for poor people. Guns vs. Butter model
MP3 Players

Boom Boxes

OR

What does the PPF show?

Society must decide how

to produce. For example, should we accept more pollution from factories in exchange for Henry Fords moveable greater output of products? assembly line Should we automate assembly at the expense of jobs?

Society must decide for whom to produce. Who will receive the goods and services? In the United States, most goods and services are distributed through the price system.
Whom do the makers of electronics target?

No
Conflicts arise in all economies

3 Basic Questions
What to produce?
How to produce it? Whom to produce it for?

Market

Command

Traditional

Mixed

Also known as Capitalism, Free Market, or Free Enterprise Defined: ownership of resources and means of production by individuals, basically free of government control in deciding goods and services produced Ownership of Resources: Productive resources privately owned and operated

Allocation of Resources: Resources are obtained through the lure of profits in the market Role of Government: Government only tries to make sure there is some competition and provides some public goods

Goals: Profit for individuals, people are motivated by economic rewards Methods: Competition, supply and demand Characteristics: Private property, specialization, minimal government regulation Political System: Democracy/Parties Current World Examples:
Canada Australia Chile Argentina South Africa

Switzerland

Also called a planned economy Defined: An economy in which all of the major economic questions are answered by a central authority Ownership of Resources: All Productive resources are owned and operated by the government

Allocation of Resources: Central planning group directs all resources Role of Government: Government makes all decisions

Goals: Equal distribution of income Methods: Revolution to gain control, no opposition forces allowed Characteristics: no private property, one political party Political System: Totalitarian Current and Former World Examples:

Cuba North Korea China Former Soviet Union
Iraq

Defined: An economic system that does things as it always has Ownership of Resources: All productive resources are owned by families Allocation of Resources: Based of customs and traditions within the tribe Role of Government: Tribes play some role in making economic decisions

Goals: Keep things how they have always been Methods: Customs and traditions passed down through family lineage Characteristics: Children follow in parents footsteps, lack of economic growth Current Examples: Aborigines Australia Political System: Tribal Organizations

Mbuti Pygmies of the Congo Kung Bushmen of Africa

Strengths: Able to change gradually Individual freedom for all Lack of government Interference Variety of goods and services High consumer satisfaction Promotes economic freedom and growth

Weaknesses: Does not protect the young, sick, old who cannot work Market failures happen leading to lots of ups and downs Doesnt promote economic security, equity, or efficiency as well as other systems

Strengths: Things can be changed dramatically in a short time Promotes economic security, efficiency, and equity

Weaknesses:

Does not meet the needs and wants of consumers Lacks effective incentives to get people to work Needs a large bureaucracy which consumes resources Inflexible for day-to-day changes New and different ideas discouraged, people cant be individuals Doesnt promote: economic growth or freedom

Strengths: All members of the community have defined roles Stable, predicable, and continuous life Promotes: economic security and equity

Weaknesses: Discourages new ideas or ways of doing things Stagnation and lack of progress Doesnt promote economic growth or freedom

Most countries in the world are a blend of different elements They are called mixed or combination systems

Defined: A system in which economic questions are answered by a combination of command and market methods Ownership of Resources: Basic utilities, other important resources government owned and operated; the rest privately owned and operated

Allocation of Resources: Government plans where resources go for key industries Role of Government: Government directs its plans for the biggest, key industries only

Goals: Equal access to services Methods: High Tax Rates Characteristics: Limited competition, lots of government planning, government: health, education, welfare Current World Examples:

England Germany Sweden Egypt

France

Italy Hungary Mexico Political System: Socialist democracy, political parties voted in

Strengths and Weakness vary by country Generally these countries experience the same ups and downs that market economies like the United States experience