1. Economic Decision Making Unit Two

2. Scarcity vs Shortages Goods- physical objects produced for sale Services-activities done for us by others The resources needed to produce these things; land, labor, materials, and machines- are scarce Shortages- lack of something that is desired- due to fads, natural disasters, etc. http://www.youtube.com/watch?v=OsQ_ROnN HIs

3. Scarcity vs Shortages Shortages are temporary; once the demand is met or the fad is over the shortage is over Scarcity will never go away; it is permanent. There will never be enough resources available to satisfy all of the wants of human beings http://www.youtube.com/watch?v=OS_9A_EA3 0M

4. The Production Process Inputs- the scarce resources that go into the production process Production equation is; Land + Labor + Capital= goods and services Land, Labor, Capital are all considered factors of production-resources used to create a good or service Outputs- the goods and services which are produced Entrepreneurship- the willingness to take the risks associated with starting a business Some economists believe entrepreneurship is the fourth factor of production

5. Land To economists land means all “the gifts of nature”- natural resources Perpetual resources- widely available and in no danger of being used up; sunlight, wind. Renewable resources- resources that with careful planning, can be replaced as they are used; forests, fresh water, fish and game Most metals can be recycled for use again and again Nonrenewable resources- resources that once they are used, are gone forever; oil, coal, natural gas http://www.youtube.com/watch?v=woNnR4Ps0Iw&list=P LBEgyQ49zuIegSWCemPQWxYjP3GlFBfNe&index=9

6. Labor Labor- the time and effort people devote to producing goods in exchange for wages; includes both physical labor and mental activities Quantity of labor depends on a country’s population and people’s willingness to work Quality of labor depends on the skills of the people

7. Human Capital Human capital- knowledge and skill that people gain from education, on-the-job training, and other experiences Correlation between human capital and standard of living is strong but correlation between natural resources and standard of living is weak Japan has a higher standard of living than Nigeria because of Human Capital

8. Capital Resources Financial capital- money used to invest in stocks, bonds, real estate, or businesses to produce future wealth Physical capital- Tools, machines, and buildings used to produce goods and services

9. Entrepreneurship Entrepreneurs are innovators, risk takers, strategists, and sparkplugs. They provide new ideas, energy, and enthusiasm needed to turn ideas into realities

10. Productivity Productivity = output/input Resources are scarce so in order to be productive we must be efficient with the resources You can increase productivity by increasing the amount of output from the same inputs or you can increase the amount of inputs Improve the productivity of your current workforce, with technology or increased work ethic, or add to the numbers of workers at your business

11. Choices Everyone must make choices because of scarcity; individually and as a society Societies must choose to use their resources for guns (military goods) or butter (civilian goods) Opportunity cost- is the value of the next best alternative that you would have chosen instead of the choice you made

12. Decisions at the Margin Marginal utility- the extra satisfaction or pleasure you get from an increase of one additional unit of a good or service Law of diminishing marginal utility-marginal utility of something diminishes as we get more of it If you have so much that we start to not enjoy having an additional unit it can become negative utility

13. Production Possibilities Frontier PPF- is an economic model in the form of a line graph that shows how an economy might use its resources to produce two goods Economic efficiency- is the result of using resources in a way that produces the maximum amount of goods and services PPF “shift to the right”= economic growth PPF “shift to the left”= economy shrinking Turn to page 31 in your text book