INTRO TO ECONOMICS FACTORS 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. wealth  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