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Scarcity and Factors of Production

Scarcity and Factors of Production. Needs vs Wants. Need- something necessary for survival- air, food, water, etc Want- an item we desire but is not essential to survival- tv , cell phones, ipods , etc

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Scarcity and Factors of Production

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  1. Scarcity and Factors of Production

  2. Needs vs Wants • Need- something necessary for survival- air, food, water, etc • Want- an item we desire but is not essential to survival- tv, cell phones, ipods, etc • One definition of economics is the study of how people seek to satisfy their needs and wants by making choices

  3. Scarcity • b/c people’s wants are unlimited, scarcity is always present • Ltd quantities of resources to meet unltd wants • No one can have an endless supply of everything, sooner or later a limit is reached • Scarcity is not the same as a shortage • A shortage is a situation where a good or service is unavailable- can be short term or long term

  4. Factors of Production • Land, labor, and capital are the three groups of resources that are used to make all goods and services • Land- all natural resources used to produce goods and services; natural resources are materials found in nature • Labor- effort that a person devotes to a task for which that person is paid • Capital- any human made resource that is used to produce other goods and services • An increase in productivity will lead to an increase in output and a decrease in inflation (rise in prices)

  5. Two Types of Capital • Physical Capital-human made objects used to create other goods and services (aka capital goods)- includes buildings, tools, and money • Human Capital- knowledge and skills a worker gains through education and experience • An economy requires both physical and human capital to produce goods and services

  6. Entrepreneurs • Ambitious leaders who decide how to combine land, labor, and capital resources to create new goods and services • They are individuals who take risks to develop original ideas, start businesses, create new industries, and fuel economic growth • All entrepreneurs take risks

  7. People Face Trade Offs • Making decisions requires trading off one goal against another • When you choose to spend an extra dollar on something, that’s one less dollar you have that you can spend on something else

  8. Opportunity Costs • Whatever must be given up to obtain some item • Happens whenever you make any decision • For example: college athletes- decide to stay in college for senior year (get degree) or go pro (make money) • Need to compare costs and benefits • Economists assume that people choose something when its expected costs are less than its anticipated benefits

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