Goal 7 Individuals and Economic Choices

Basic Factors of Production Land (property plus natural resources on property) Labor (contribution of human workers) Capital (all structures and equipment used to manufacture products) Entrepreneurship (risk-taking capabilities to create a business)

Making Decisions Based on productivity (what is the rate at which something can be done) Based on scarcity (lack of adequate resources) and shortage (long-term lack of resources Based on needs and wants Producers and Consumers make their own decisions

Decision-Making Model Define the Problem List the Alternatives State the Criteria Evaluate the Alternatives through tradeoffs and opportunity cost Make a Decision

Types of Costs and Benefits Variable Cost – costs that change with a change in amount of products Fixed Cost – costs that don’t change with a change in amount of products Total Cost – adding variable and fixed costs Marginal Cost – cost of producing one extra unit of a product Tradeoff – choosing one alternative over another Opportunity Cost – the cost that goes with choosing one alternative over another Marginal Revenue – extra revenue made from producing one extra unit of a good Marginal Benefit – extra benefit associated with producing an extra good Total Revenue – total amount of revenue made

Increasing Productivity Specialization – devotion to a certain task Division of Labor – breaking a task down into smaller tasks for more efficiency (such as in an assembly line) Mass Production – ability to produce a lot of a product at one time Technology and Human Capital increase productivity Robotics, Automation, and Agribusiness

Human Capital Unskilled Worker – job that requires minimal skills Skilled Worker – job requires greater training, education, and skills Blue Collar Worker – occupations that require manual labor White Collar Worker – occupations with little manual labor It is important to remember that even blue collar jobs can be skilled

Investment, PPI, and Diminishing Returns When deciding on a product, a business will determine investment cost v. future benefits Business must consider: 1) PPI – measures average change in prices of different goods 2) Output v. Input – what is put into making a good and what comes out of making it 3) Law of Diminishing Returns – the more of an input that is put in, the less the output gotten from each input

Economic Systems Market Economy 1) Choices and exchange of goods 2) Profit Motive and Consumer Sovereignty drive economy 3) Adam Smith writes Wealth of Nations (includes Invisible Hand, Free Enterprise, and Laissez-Faire) Command Economy 1) Socialism and Communism 2) Cooperation drives economy, not profit 3) Karl Marx and Friedrich Engels publish The Communist Manifesto

Mixed Economies A combination of market and command Keynesian Theory promotes the market economy but advocates an aggressive fiscal policy by the national government, creating a mixed economic system