2Objectives Explain why scarcity and choice are the basis of economics. Describe what entrepreneurs do.Define the three factors of production and the differences between physical and human capital.Explain how scarcity affects the factors of production.
3Key Terms need: something essential for survival want: something that people desire but that is not necessary for survivalgoods: the physical objects that someone producesservices: the actions or activities that one person performs for anotherscarcity: the principle that limited amounts of goods and services are available to meet unlimited wants
4Key Terms, cont.economics: the study of how people seek to satisfy their needs and wants by making choicesshortage: a situation in which consumers want more of a good or service than producers are willing to make available at particular pricesentrepreneur: a person who decides how to combine resources to create goods and servicesfactors of production: the resources that are used to make goods and services
5Key Terms, cont.land: all natural resources used to produce goods and serviceslabor: the effort people devote to tasks for which they are paidcapital: any human-made resource that is used to produce other goods and servicesphysical capital: the human-made objects used to create other goods and serviceshuman capital: the knowledge and skills a worker gains through education and experience
6Introduction How does scarcity force people to make economic choices? Scarcity forces all of us to make choices by making us decide which options are most important to us.The principle of scarcity states that there are limited goods and services for unlimited wants. Thus, people need to make choices in order to satisfy the wants that are most important to them.Purpose of this activity is to help you to become familiar with the three economic terms: Scarcity, productive resources, and opportunity costs.scarcity: the principle that limited amounts of goods and services are available to meet unlimited wants and needsProductive resources (factors of production): land, labor, capital – resources used to make goods and servicesOpportunity costs – the most desirable alternative (trade-off) given up as a result of a decision.Trade-off: The act of giving up one benefit in order to gain another, greater benefitProduction Possibilities Curve: A graph that shows alternative ways to use an economy’s productive resources
7Scarcity and Choice Activity Purpose of this activity is to help you to become familiar with the three economic terms: Scarcity, productive resources, and opportunity costs.
8Scarcityscarcity: the principle that limited amounts of goods and services are available to meet unlimited wants and needs
9Factors of Production/Production Resources Productive resources (factors of production): land, labor, capital – resources used to make goods and services
10Trade-offs and Opportunity Costs Trade-off: The act of giving up one benefit in order to gain another, greater benefitOpportunity costs – the most desirable alternative (trade-off) given up as a result of a decision.
11Production Possibilities Curve Production Possibilities Curve: A graph that shows alternative ways to use an economy’s productive resources
12Scarcity and ChoicePeople satisfy their needs and wants with goods and services.People’s needs and wants are unlimited, yet goods and services are limited.
13Scarcity and Choice, cont. Economics begins with the idea that people cannot have everything they need and want.The fact that limited amounts of goods and services are available to meet unlimited wants is called scarcity.Scarcity forces people to make choices but it is not the same as a shortage.Shortages are temporary while scarcity always exists.Scarcity is a constant condition that always exists, unlike a shortageThere are simply not enough productive resources(land, labor and capital) with which to produce all of the goods and services needed and wanted.The problem of scarcity cannot be solved quickly therefore it is considered to be a permanent condition.Remember, things like technological advancement, exploration, establishing trade agreements and population shifts can take years even decades to achieve. These increases can’t keep up with the growth in population.Shortages are temporary and are directly related to price and profits. We’ll learn more in Chapters 6 and 7. (price and wage freezes, oligopolies and monopolies)Occurs when consumers want more of a good than producers are willing to make available at a particular price.
14EntrepreneursEntrepreneurs play a key role in turning scarce resources into goods and services.Entrepreneurs are willing to take risks in order to make a profit. They:Develop original ideasStart businessesCreate new industriesFuel economic growthCombine resources to create new products and services.Risk takers - Motivated by profitAnyone who starts a new business is an entrepreneurBelieve they can compete with others because of new ideas in marketing, improvement in production methods, location, forecasting of increased demand,
15Entrepreneurs, contAn entrepreneur’s first task is to assemble the factors of production: land, labor, and capital.
16Factors of Production: Land Land refers to all natural resources used to produce goods and services.These resources include:Fertile land for farmingOilCoalIronWaterForests
17Factors of Production: Labor Labor is the effort people devote to tasks for which they are paid.Labor includes:The medical care provided by a doctorThe classroom instruction provided by a teacherThe tightening of a bolt by an assembly-line workerThe creation of a painting by an artistThe repair of a television by a technician
18Factors of Production: Capital Capital refers to any human-made resource that is used to produce other goods and services.An economy requires both physical and human capital to produce goods and services.Physical capital includes:BuildingsEquipmentToolsHuman capital includes:A college educationTrainingJob experienceAsk students to look at page 7, Question #7 to identify factor of production.
19Benefits of CapitalCapital is a key factor of production because people and companies can use it to save a great deal of time and money.The benefits of capital include:Increased efficiencyIncreased knowledgeBetter time managementIncreased productivityWhat physical capital did farmers use to use to till the land?What new invention was created that allow farmers to grow more crops?Entrepreneurs whose ideas leading up to the Industrialization of the North and the Industrial RevolutionEli Whitney’s - cotton gin and musketHenry Ford’s - automobiles to be produced in a factory?assembly line using interchangeable partsIf time, have students consider question #8 on page 7.
20Scarce Resources Checkpoint: Why are goods and services scarce? All goods and services are scarce because the resources used to produce them are scarce.There are only so many natural resources available to produce particular goods.Checkpoint Answer: because the resources used to produce them are scarce
21Scarce Resources, cont.The amount of labor available to produce goods and services can be limited.Physical capital is also limited for many industries.Each resource may also have alternative uses. Individuals, businesses, and governments have to choose which alternative they want most.
22ReviewNow that you have learned how scarcity forces people to make economic choices, go back and answer the Chapter Essential Question.How can we make the best economic choices?