Scarcity, Resources, Choice, Opportunity cost, Price, Incentives
Supply and Demand, Production, and Consumption

How do people deal with scarcity, resources, choice, opportunity cost, price, incentives, supply and demand, production, and consumption?

People make choices about how to use limited resources, decide the ownership of resources, and structure markets for the distribution of goods and services.


is the inability to satisfy all wants at the same time. All resources and goods are limited. This requires that choices be made.


are factors of production that are used in the production of goods and services. Types of resources are natural, human, capital, and entrepreneurship.


is selecting an item or action from a set of possible alternatives. Individuals must choose/make decisions about desired goods and services because these goods and services are limited.

Opportunity cost

is what is given up when a choice is made—the highest valued alternative forgone. Individuals must consider the value of what is given up when making a choice.


is the amount of money exchanged for a good or service. Interaction of supply and demand determines price. Price determines who acquires goods and services.


are things that incite or motivate. Incentives are used to change economic behavior.


Supply and Demand

Interaction of supply and demand determines price.

is the amount of a good or service that consumers are willing and able to buy at a certain price.

is the amount of a good or service that producers are willing and able to sell at a certain price.


is the combining of human, natural, capital, and entrepreneurship resources to make goods or provide services.

Resources available and consumer preferences determine what is produced.


is using goods and services.

Consumer preferences and price determine what is purchased.

Free Market, Command, and Mixed Economies

What are the basic characteristics of free market, command, and mixed economies?

The type of economy is determined by the extent of government involvement in economic decision making.

Characteristics of major economic systems:

Free market
Private ownership of property/resources
     - Profit
     - Competition
     - Consumer sovereignty
     - Individual choice

• Command economy
Central ownership of property/resources
     - Centrally-planned economy
     - Lack of consumer choice

• Mixed economy
Individuals and businesses as decision makers for the private sector
     - Government as decision maker for the public sector
     - A greater government role than in a free market economy
     - Most common economic system today

The U.S. Economy

What are the essential characteristics of the United States economy?

The United States economy is a mixed economy.

In the United States private individuals, businesses, and government share economic decision making.

Characteristics of the United States economy:

Free markets—Markets are allowed to operate without undue interference from the government.

Private property—Individuals and businesses have the right to own personal property as well as the means of production without undue interference from the government.

Profit—Profit consists of earnings after all expenses have been paid.

Competition—Rivalry between producers/sellers of a good or service results in better quality goods and services at a lower price.

Consumer sovereignty—Consumers determine through purchases, what goods and services will be produced.