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Copyright Goodheart-Willcox Co., Inc.
Chapter 1 Introduction to Business and Economics
Individuals make economic decisions based
on what is most valuable to them. Nations also
have many economic needs and wants, but
most resources are scarce. As a result, nations
have to make economic choices with bigger
opportunity costs.
When making economic decisions, a
systematic decision-making process can
help identify the best option. Systematic
decision-making is a process of choosing an
option after evaluating the available information
and weighing the costs and benefits of the
alternatives. A systematic decision-making
process can be used by both businesses and
individuals. The process involves five steps, as
shown in Figure 1-5.
1. Define the decision to be made. Have a clear
understanding of the end goal. For a
business, it may be to offer a new product
line or change the image of the business.
For an individual, it may be a purchasing
decision or where to cut expenses.
2. Explore all alternatives. Analyze all the
options available. What is the benefit of
each option? What is the disadvantage of
each? What is the financial cost of each
option?
3. Choose the best alternative. After considering
all alternatives, decide which option is better.
The decision may be a single option or a
combination of several options.
4. Act on the decision. Carry out the plan.
5. Evaluate the solution or decision. Evaluation is
an ongoing process. Evaluate how effective
the choice is in reaching the end goal. Did
the plan work? How can it be improved? The
evaluation process can help an individual
or business stay on track and make better
decisions in the future.
Economic Systems
A system is a way to manage, control, or
organize something that follows a set of rules.
An economic system is an organized way in
which a nation chooses to use its resources to
create goods and services. Scarce resources limit
the quantity of goods and services produced in
any economic system. The problem of scarcity
leads to three important economic questions
every nation must answer.
• What should we produce?
• How should we produce it?
• For whom should we produce it?
A nation’s economic system develops around
the way it deals with scarcity. Economists
classify economic systems as being a traditional,
command, or market economy. However, many
economies today are mixed. Mixed economies
have elements of both command and market
economies.
Goodheart-Willcox Publisher
Figure 1-5 A systematic decision-making process can
be a helpful tool when making economic decisions.
Define the problem
or challenge
Research
alternatives
Choose the best
alternative
Implement the
decision
Evaluate the
decision
Steps in the Decision-Making Process