INTRO TO ECONOMICSFACTORS OF PRODUCTION

Economics is the study of choices & decisions people make about how to use the world’s resources.

Meeting unlimited wants & needs of a society with limited resources.

Merriam-Webster Dictionary defines Economics as 1 a : a social science concerned chiefly with description & analysis of the production, distribution, & consumption of goods & services.

People are forced to make decisions & choices

We cannot have everything we need or want.

This condition that ALWAYS exists where we try to satisfy our unlimited wants with limited resources

Economics is the study of people trying to solve this problem.

A permanent loss of some resource

If goods or services are in scarcity, they are gone forever.

Goods & services are scarce, because they are made from scarce resources.

When goods or services are gone for a period of time, they are gone temporarily.

At some point they will come back.

Shortage is different from scarcity

Need: Necessary for Survival◦Examples (air, food, shelter, water)

◦Want: An item we desire, but is not essential to survival.

◦What are some examples of wants?

1. List 3 choices you made this weekend.

2. What influenced the choice?

3. What did you give up for that choice?

Everytime we make a choice, we have to give up something.

All the things that we give up are called TRADE-OFFS

Whenever you make a choice, there are many trade-offs.

The MOST desirable alternative you give up is called the opportunity cost

The opportunity cost is what you have to give up “that hurts most”

◦Good-Actual product/tangible Item

◦Service-Something that is provided for you so you do not have to do it.

Factors of production are the resources that go into making a good or service

There are four factors of production◦ Land◦ Labor◦ Capital◦ Entrepreneurship

Defined as everything in the universe that is not created by human beings.

All natural resources that go into making goods & services

Land can be: Air, sunlight, forests, earth, water, minerals & all manner of natural forces or opportunities

Natural Resources are all raw materials in nature used to produce human needs & wants◦ Renewable: Resource that can be replenished or

replaced◦ Non-Renewable: Resource that cannot be

replenished over time

Human-made Resources are all items that are created & produced by humans

Uses capital on land to produce wealth. Refers to human resources or the work that people do.

All workers in the economy that produce goods & services

Physical Capital – Also called capital goods, all of the resources that are man-made.

◦ Man made resources that are used to help produce goods & services (cannot be a human)

◦ Increases productivity by saving time

Human Capital – ◦ The sum of workers skills & talents◦ Increased by: training, education, motivation◦ Both types of Capital are needed to produce

goods & services.

People that take risks to start businesses & keep the economy running.

They gather & implement the factors of production to create goods/services needed or desired in an economy.

Think of Entrepreneurs as people that take land, labor & capital to produce their own goods & services