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Factors of Production

Factors of Production. What to do with the fundamental economic problem of scarcity?. Three Basic Questions. In order to solve the problem of scarcity, economists must attempt to answer three basic questions. What? How? For Whom?. What must we Produce?.

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Factors of Production

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

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

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

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

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

  6. 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).

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

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

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

  10. 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

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

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