1. AP ECON – CH. 1, SECT. 1 Scarcity and Factors of Production

2. OBJECTIVES Objectives Explain why scarcity and choice are basic problems of economics Identify land, labor, and capital as the three factors of production, and identify the two types of capital Explain the role of entrepreneurs Explain why economists say all resources are scarce

3. NEEDS VS WANTS Needs – Necessary for survival Wants – Desired but not essential

4. DEFINITION OF ECONOMICS A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants.

5. GOODS VS SERVICES Good The physical output of a firm producing a product meant for sale and consumption in a product market. Service The non-physical output of firms meant for consumption in a product market. Services are “non-tangible” goods that can be bought and sold, but not physically consumed.

6. SCARCITY VS SHORTAGE Shortage When something is both desired and limited in supply. All resources (land, labor and capital) are limited in supply, yet desired for their use in the production of goods and services. Scarcity When the quantity demanded for a particular good is greater than the quantity supplied. Also called “excess demand”. Occurs when the price is below the equilibrium (price=demand) level, for example, when a government imposes a price ceiling in a market.

7. FACTORS OF PRODUCTION An economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. Land or natural resources Any resource created by nature Labor Human effort and talent, physical and mental –can be augmented with training and education (human capital) Capital Physical – manmade equipment like machinery, but also roads, vehicles, and computers Human – abilities, creativity, knowledge, expertise directed toward producing value Entrepreneurship The effort and know-how to manipulate resources productively

8. AT THE TOP OF A PIECE OF PAPER, MAKE FOUR HEADINGS: CAPITAL, ENTREPRENEUR, LAND, AND LABOR. PLACE THESE ITEMS UNDER THE CORRECT HEADING Delivery Truck Teacher Bill Gates Factory Tree ATM Machine Bulldozer Tractor Farmer Factory Worker Bushel of Corn River Hairstylist Gold Henry Ford Crude Oil Doctor Store owner who opens a 10 store chain