Chapter 2 Ian Miller

2.1: Choices

Economics is all about making choices and satisfying the needs and wants of consumers

Needs- Things that you need to survive

Wants- Things you think you must have to be satisfied

Economic Resources

There are three kinds of economic resources that are used by entrepreneurs to produce goods/services

Natural resources- raw materials supplied by nature are call natural resources. Examples include oil, minerals, and nutrients needed to grow crops and timbers

Human resources- the people who create goods and services are called human resources. They may work in agriculture, manufacturing, distribution, or retail businesses

Capital resources- the assets invested in the production of goods or services are call capital resources. Capital resources include buildings, equipment, and supplies

Role of Entrepreneurs in the US Economy

Entrepreneurs play an important role in the US economy.

They supply almost everything that we use in daily life. Goods and services are all provided by entrepreneurs.

Entrepreneurs also provide capital investment and job creation, which serves as agents for change in the economy

2.2 Economic Decisions

Economic Systems

There are four kinds of economic systems

  1. Command economy- in a command economy, the government determines what, how, and for whom products and services are produced. These types of economies are usually found in dictatorships
  2. Market economy- in a market economy, individuals and businesses decide what gets produced and for whom they are producing to. This type of economy is usually found in democracies.
  3. Mixed economy- in a mixed economy, elements from a command economy and a market economy are combines. This is often caused by a countries shift from a command economy to a market economy
  4. Traditional economy- in a traditional economy, goods and services are produced the way they have always been produced. This type of economy is usually found in underdeveloped countries where industrialization has not taken place.

Command Economy

Market Economy

Mixed Economy

Traditional Economy

Economic choices are necessary in our economy because of our unlimited desire and scarcity

Scarcity- when peoples needs and wants are unlimited and the resources to produce those needs and wants are limited

Functions of a Business

There are four functions of a business

  1. Production- the primary reason a business exists is to provide a product/service to a consumer and to make profit off of that product/service
  2. Marketing- for a product or service to be successful a business needs to complete marketing activities so consumers know what their business provides.
  3. Management- developing, implementing, and evaluation plans and activities.
  4. Finance- determining the amount of capital needed for a business to succeed and how the capital will be obatined

2.3 causes of price fluctuations

Supply and Demand

Supply- how much of a good or service a producer is willing to produce at different prices

Demand- an individual's need or desire for a product or service at a given price

Equilibrium point- The point at which supply equals deman

Entrepreneurs must consider all the resources that go into producing a good or service to determine a price

Fixed cost- remain the same regardless of how much of a good or service is produced

Variable cost- go up and down depending on the level of production

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