E
Q
10
Copyright Goodheart-Willcox Co., Inc.
ssential
uestion
How do the principles
of economics apply to
business?
Objectives
After completing this section, you will be able to:
• Explain the importance of economics.
• Describe the four economic systems.
• Discuss the impact of market forces on businesses.
Key Terms
economics
factors of production
labor
capital
capital goods
entrepreneurship
entrepreneur
scarcity
trade-off
opportunity cost
systematic
decision-making
economic system
traditional economy
command economy
market economy
capitalism
mixed economy
law of supply and
demand
competition
Section
1.2
Introduction to Economics
Economics
Economics is a science that examines how
goods and services are produced, sold, and
used. It involves how people, governments,
and businesses make choices about using
limited resources to satisfy unlimited wants.
Understanding the role of economics in the
buying decisions of consumers helps businesses
make better plans and decisions.
Economic Resources
All economic resources are limited.
Individuals, businesses, and governments must
decide how to use resources in order to meet their
needs. Unlimited needs and wants cannot be met
with limited resources. Decisions must be made
about which goods or services will be created.
Factors of production are the economic
resources a nation uses to make goods and
supply services for its population. The factors
of production are land, labor, capital, and
entrepreneurship, as shown in Figure 1-3.
Land includes all of a nation’s natural
resources. Natural resources are raw materials
found in nature. These can include soil, water,
minerals, plants, and animals. Every good
produced uses some form of natural resources.
Many natural resources are scarce and take a
very long time to replenish. Even developed
nations, like the United States, have limited
natural resources.
Labor is the work performed by people in
organizations. It is also called human resources.
This includes workers producing goods,
accountants managing company finances,
human resources staff interviewing and hiring