1. Scarcity and the Factors of Production
What is Economics?
Scarcity and the Factors of Production

2. Defining Economics What fundamental principles make up economics?
Needs
Wants
Versus

3. “The Story of Stuff”

4. What is the definition?
Economics is the study of how people seek to satisfy their needs and wants by making choices.

5. Why do people make these choices?
SCARCITY

6. The Condition of Scarcity
Our resources are limited…but our desire for good and services are NOT
Unlimited Wants
Limited Resources
Something is scarce if it has more than one valuable use.
Consider your time
When resources are used to do one thing they are unavailable to do others.
BUT

7. To Choose is to Sacrifice
Scarcity forces us to make choices
Choosing an action means we sacrifice doing something else.
Thus we make choices meaning we are sacrificing doing something else.
The Opportunity Cost of a choice is the value of what is given up (The next best alternative).

8. Question…
Scarcity is correctly described by which of the following statements? I. Scarcity exists if there are more uses for resources than can be satisfied at one time. II. Scarcity exists if decisions must be made about alternative uses for resources. III. Scarcity would not exist in a society in which people wanted to help others instead of themselves.
(a) I only
(b) II only
(c) III only
(d) I and II only
(e) I, II, and III

9. Scarcity vs. Shortages NOT THE SAME THING!!!
A shortage occurs when producers will not or cannot offer goods or services at the current prices.
They can be temporary or long-term
Exs?
Scarcity on the other hand always exists because our needs and wants are always greater than our resource supply.

10. What to do with the fundamental economic problem of scarcity?
Factors of Production
What to do with the fundamental economic problem of scarcity?

11. Three Basic Questions
In order to solve the problem of scarcity, economists must attempt to answer three basic questions.
What?
How?
For Whom?

12. What must we Produce?
Society must choose based on its needs

13. How to Produce?
Society must choose based on its resources

14. For Whom to Produce?
Society must choose based on its population and other available markets

15. Factors of Production
Once a society is ready to work on answering the three basic questions, they must then turn to their available factors of production (the resources needed to produce what people want and need).

16. Land The society’s limited natural resources Landforms Minerals
Vegetation
Animal life
Climate

17. Labor (Human Resources)
The workers who apply their efforts, abilities, and skills to production
Physical Abilities
Mental Abilities

18. Capital The means by which something is produced Money Tools Equipment
Machinery
Factories

19. Entrepreneurship
Risk-takers who combine the land, labor, and capital into new products
Makes basic business policy decisions
Innovator for new products, production techniques, organizational forms
Bears the risk of time, effort, and funds

20. Production
Creating goods and services—the result of land, capital, labor, and entrepreneurs

21. Who makes these decisions?
Consumers – the people who decide to buy things
What is the incentive of the consumer?
Get the most of what they value from their expenditures, BUT they are constrained by their budget.

22. What is the difference between a NEED and a WANT?
NEEDS
WANTS
Those goods and services that are necessary for survival
Food, clothing, shelter
Those goods and services that people consume beyond what is necessary for survival

23. Item/Activity
Need
Want
Clothing
Going to the Movies
Going out to eat
A place to live
A car/truck
A computer
Owning an iPod
Going to a basketball game
Owning a vacation home
Food

24. Question… Human wants are… a) Always fixed b) Limited c) Unlimited
d) Likely to decrease over time

25. What is the main incentive of the producer?
Producers – the people who make the things that satisfy consumers needs and wants
What is the main incentive of the producer?
Provide consumers with what they value the most while covering their costs of production and making a profit.

26. What are Goods and Services?
Physical objects that can be purchased
Pizza, bicycle, shoes
Actions or activities that are performed for a fee.
Lawyers, teachers, plumbers