Chapter Thirteen

What Is an Economy?

Section One
Why Societies Have Economies

I. People’s Many Wants
A. Basic Wants 1. Food 2. Clothing 3. Shelter B. Less-basic Wants 1. Entertainment 2. Health Care

C. Wants are influenced by many things. 1. Environment 2. Society and Culture 3. Personality

D. Many wants can only be satisfied for a short time. 1. Clothing – sizes 2. Hunger – it comes and goes. E. Wants occur again and again. 1. Clothing 2. Hunger

II. Using Resources
A. Factors of production – the resources people have for producing goods and services to satisfy their wants. 1. Land – natural resources a. Soil, minerals, water b. Timber c. Energy

2. Labor – workers a. Workers use time. b. Workers use energy. 3. Capital – anything produced in an economy that is used to produce other goods and services. a. Includes any tools, machines, buildings used to produce goods.

b. Goods such as tools and factories are used as capital. EX – tools used to fix bicycles and a computer to keep track of sales are capital goods to the owner. c. Financial capital – money available for investing or spending on the business.

III. Production to Consumption A. Wants 1. Mr. Grobelny’s clothes don’t match. 2. He decides he wants a new tie to bring his outfit together.

B. Production 1. The combination of land, labor, and capital. 2. For Mr. G’s tie, silk worms are grown, silk is harvested, silk thread is spun, silk fabric is woven, the fabric is cut and sewn by workers, who create the final product.

C. Distribution 1 The tie is sent to a company warehouse where it is then sold and delivered to a department store.

D. Consumption 1. Mr. G buys the tie. 2. At this point, I have achieved want satisfaction. 3. This process repeats itself.

IV. Making Choices
A. Benefits 1. We must make choices about which wants we want satisfied. 2. These choices are called economic choices. 3. When making choices, we evaluate the benefits we will get from that choice.

B. Costs 1. The second part of making a choice is evaluating the costs. 2. The cost of any decision is giving up the benefit of the alternative. 3. Opportunity cost – the highest valued benefit given up when a choice is made.

V. Scarcity
A. Scarcity – resources are always limited compared with the number and variety of wants people have. B. This is a problem of rich and poor societies. C. Scarcity deals with the relationship between wants and the resources available to satisfy them.

D. Example 1. Japan does not have enough good farmland to grow all the food its people want. 2. The U.S. has plenty of good farmland. 3. Some of the U.S. farmland is for factories, malls, houses, etc. 4. Land is scarce in both cases.

E. Each decision to use one resource is a decision not to use another. 1. A farmer can use his land, labor, and capital – scarce resources – to grow wheat. 2. Or he can grow corn. 3. The farmer must decide which is the better choice.

F. Businesses, individuals, and governments all have to make choices. 1. Should the government spend $3 billion on defense systems? 2. Or should the government spend the same $3 billion to improve schools, protect the environment, etc.?

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