6GoodsThe products created on Aquarius Island are goods. Goods are physical objects such as clothes or shoes.
7ServicesServices are actions that one person performs for another
8All Resources are Scarce All resources, especially on Aquarius Island are scarce. Scarcity is limited resources to meet unlimited wants.
9Scarcity vs. ShortageA shortage is a situation in which a good or service is unavailable. Sometimes a producer cannot or will not offer a good or service.Shortages are temporaryGoods are scarce because resources are scarce. On your island, you did not have unlimited papaya because papaya is scarce.
10ScarcityOur resources are insufficient to achieve all our goals and all or wantsWe cannot have everything we wantUsing economic reasoning, i.e. making choices, we can get more from our resources
11Factors of ProductionFactors of production are the resources used to make goods and services (land, labor, capital, entrepreneur)
12Factors of ProductionLand is all natural resources used to make goods and services (land, coal, water, wood, etc.)
13Factors of ProductionLabor is the effort people devote to a task for which they are paid
14Factors of ProductionCapital is any human made resource that is used to produce other goods and services
15Factors of ProductionPhysical CapitalHuman CapitalHuman made objects that create goods or services (buildings, tools, factories.) These things make us more productiveThe knowledge or skills a worker gains through education and experience
16Factors of ProductionEntrepreneurship combines all resources to produce a new good or service
17Factors of ProductionEntrepreneur's are ambitious leaders who combines land and capital to create and market new goods and services
18Guns or ButterGuns or Butter- If a country decides to produce more military goods (guns) then they will have fewer resources to devote to consumer goods ex. Health care, education (butter)vs
19Trade-offs vs. Opportunity Costs Are an alternative we sacrifice when we make a decisionIndividual trade-offs: Work more, play lessBusiness trade-offs: Produce more coconuts rather than papayaIs the most desirable alternative given up as the result of a decisionEx. You choose to make a life on Aquarius Island rather than try and escape
20Thinking at the MarginThinking at the margin means deciding how much more or less to do. Usually we don’t stay up all night to build shelter. We build part of it one day and build part of it the next day, that way you can still sleep
21Cost and Benefit at the Margin With cost and benefit at the margin, you have to look at how decisions affect how much you spend and how much you gainWhen you sacrifice more than you gain, no more units should be added
22Efficiency and Productivity Remember, the goal of an economy is to be efficient. Efficiency is when an economy uses it’s resources in such a way as to maximize the production of goods and services.Efficiency means increasing productivity!
23Production Possibilities Economists often use graphs to help show data.A Production Possibilities Curve shows alternative ways to use an economy’s productive resources.The Production Possibilities Frontier is a line on the graph that shows the maximum possible output. Each point on the graph represents a trade off.
24Production Possibilities Using few resources than an economy is capable of using is underutilization
25Production Possibilities For every choice we make, there is a cost.Law of Increasing Costs states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases.