Chapter 1 Basic Economic Concepts

Chapter 1 Basic Economic Concepts

Section 1.1 A Look at Wants and Needs

Wants and Needs Drive the Economy

Wants = things you desire but do not need to survive

Needs = things you need to survive (i.e. food, water, shelter and clothing)

Private wants are things individuals desire

Public wants are things shared by many people and are usually provided by government (i.e. roads, public libraries and schools, parks, etc.)

Reading Check p.7

Satisfying Wants and Needs

Goods = physical products such as groceries and telephones

Services = tasks that people or machines perform for customers such as hair cuts, bus ride, movies, etc.

How Resources Limit the Ability to Satisfy Wants and Needs

Resources = items that people can use to make or obtain what they want or need (i.e. money, fuel and labor)

Because we have limited resources and unlimited (abundance, more than enough) wants and needs choices must be made

Making wise choices with your resources is very important!

Reading Check p.9

The Decision Making Process (Fig 1.1, p.9)

Step 1: Identify the Problem

Step 2: Identify possible courses of action

Step 3: Determine the pros and cons

Step 4: Make a decision

Step 5: Evaluate your decision

Obviously some decisions are easier than others and do not require going through all the steps of the decision making process. The longer a decision will affect your life, the more you need to evaluate your options and consider possible consequences.

Business Decision making is usually done by management with the most important decisions made by the highest level of management which is usually the owner or president.

“After You Read” p.10

Section 1.2 How to Define Business

Business is any commercial activity that seeks to profit by providing goods and services to others in exchange for money.

Profit is the money left over after the business has paid the cost of providing its goods and services.

Reading Check p.12

The Motive of Business: To Make a Profit

The wealth created by businesses benefits the entire community because businesses pay taxes and provide jobs.

The Significance of Competition: the contest between businesses to win customers

Competition is possible because companies have the freedom to produce the products they think will be the most profitable and can be based on price (this is price competition), features (this is non-price competition) or both.

The number one motivation/objective of any business is PROFIT

The Significance of Competition: everyone benefits from competition.

The business benefits because they are forced to get better.

Consumers benefit because we have better goods and services more choices.

Business Activities:

• Identify opportunities for products or services;
• Evaluate the demand for products or services;
• Obtain start-up money and operating capital;
• Manage the production of goods and/or services;
• Market the goods and/or services;
• Keep records to satisfy government requirements and improve processes.

Business and You the Consumer (person who uses goods and services)

Businesses are affected by consumers and consumers are affected by businesses (it’s a two-way street)

After You Read p.15