Chapter Two - Big Ideas By: Emily Kellum

Costs of doing business

Fixed & Variable Costs

Fixed Costs are costs that must be paid regardless of how much of a good or service is produced, also known as sunk costs. Variable Costs are costs that go up and down depending on the quantity of the good or service.

Know The Difference Between Your Wants & Needs

The role of a business is to produce and distribute goods and services that people need and want.

Needs are things you must have in order to survive. Food, water, a place to live, basic clothing, etc. Abraham Maslow was a psychologist who developed a theory on the hierarchy of needs. After one level is met, you automatically and mentally move on to the next one.

Wants are those things you think you must have in order to be satisfied. Such as technology, jewelry, music, fashionable clothes, etc. There are two different types of wants, economic and non-economic. Economic wants are desires for material goods (clothing, housing, and cars) and services (hair styling and medical care). Goods and services people want must be produced, clothes must be made, houses constructed, cars manufactured and personal services supplied. Non-economic wants are a desire for non-material things such as exercise, friendship, sunshine, fresh air, and happiness.

Needs & Wants are Unlimited

They never end! Only your mind limits you to what you can think of and what business make available for sale. For example, say you are going camping. Well maybe you want a tent, then you want other supplies like a flashlight, bug spray, marshmallows for the fire, a backpack and much, much more!

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