01 monday factors of production

Short Quiz on slate, use your notes1. Under a command economy, who decides what is

produced and production levels?A. Corporations B. Companies C. Government planners D. Consumers

2. What wasn’t considered when a person stood inline for 3 hours to get a free hamburger?

A. Trade offs other consumers are making B. price of hamburgersC. Price of alternative goods D. Opportunity Cost

3. What is your incentive for improving your GPA?A. Opportunity Cost B. lower student loan interest rateC. Price of college tuition D. scholarships

4. Economists “think at the margin”, explain what that means using at least one example

What economic opportunities do you see in this picture?

May 2008

How does the seal show economics?

New Mexico: The Hug State

What is this?

On slates• What are two ways households interact with

firms?

Circular Flow Model

Households Firms

Product Market (output)

Factor Market (input)

Money $$$ (prices)

Goods/Services

labor

Wages $$

Capital $$

Add gov’t to modelTransfer payments

Rent $$ Dividends $$

land

(costs)

In ReviewIn our system:

• Firms need households

• Households need firms

• They are interconnected

• Transactions cost

What keeps our economy moving?

Factors of Production• Items we need to be in business

• 3 categories + 4th idea

• “inputs”

Land• Any natural resource

– Copper mine example

Labor• People working

• Wages $

• Benefits

Subset of Labor: Human Capital• Skills, experience, education a person has• It’s the reason doctors are paid more than sandwich

artists

Capital• Goods used to create other goods/services

• Usually the largest cost for entrepreneurs

• Explanation for “Capitalism”

Let’s build a new Circle K!

• Land

• Labor

• Capital

New Ideas!Real job creation

• Entrepreneur – French word

• Person who takes a risk combines land, labor and capital to start a new business– OR comes up with a new idea

within a business

Empresario

“Free Market” Economic System• Laissez Faire – French for “leave alone”

• Read Adam Smith “Wealth of Nations”

• Guided by “invisible hand” – meaning

• Steak clip

Principles 6 & 7• Describe 5

ways the government could reduce transaction costs in the product and factor markets