What is the definition? Resources necessary to produce goods and services

 Natural Resources (AKA Land)  Labor (AKA Work)  Capital (2 Types)  Physical Capital (AKA Stuff)  Human Capital (AKA Knowledge)

 Also called “Land”  These are gifts of nature  Things that are found naturally  Things that do not need to be created  Examples:  Lumber  Crude Oil  Natural Gas  Air  Water  Sunshine

 This is the physical work done by someone  Usually services  Examples:  Lumberjack cutting down a tree  Stylist cutting your hair  Chef cooking a meal at a restaurant  Bus driver transporting children

Physical Capital  The tangible items used to make a product (goods)  Examples:  Paint  Chainsaw  Hammer  Truck Human Capital  The knowledge of how to do or make something (the “How to”)  Examples:  How to drive a car  How to operate the computer  How to cut hair  How to cook a steak

What is a cost?

 Opportunity Cost  Fixed Cost  Variable Cost  Marginal Cost

OPPORTUNITY COST  The most valuable option that is given up to get what is wanted

FIXED COST  Expenses that are the same no matter how many units or items are produced  Do not change that is why they are called “fixed”  Example:  Rent or mortgage on the factory

VARIABLE COST  An expense that changes depending on how much is produced  These vary that is why they are called “Variable”  Examples:  Employee wages  Utilities  Materials

Marginal Cost  The additional or extra opportunity cost of producing one more unit or item.  What more do you have to give up to get one more? Marginal Benefit  The additional or extra benefit gained from producing one more unit.  What more do you get when you make one more?

 Comparing the marginal costs and marginal benefits of a decision.  Weighing the pros and cons