Scarcity and the Factors of Production Mr. Rosenstock Economics San Fernando High School

Scarcity Needs vs. Wants The fundamental problem facing all societies is that of Scarcity Scarcity is the condition of not having enough resources to produce all the things people would like to have Scarcity leads to choices Needs vs. Wants Needs: Basic requirements for survival like food, clothing and shelter Wants: Are the way of expressing a need (like wanting pizza to express the need for food)

Choices WHAT to produce? With limited resources, what should society produce? Where should production go to: food, housing, clothing etc?

HOW to produce? Should we keep more workers employed and use less machines or, should we use more machines (mass production/automation) and hire less workers?

for WHOM to produce? After the first two questions are solved, society needs to decide for whom to produce Who are the intended buyers of the goods we produce: the average middle class person, the wealthy, women, children, men, etc.?

There Is No Such Thing As A Free Lunch Because resources are limited, nothing produced is ever really free Everything costs something

Factors of Production In order for anything to be made there are three requirements: Land: the “gifts of nature.” Our natural resources

Labor: Workers

Capital: all of the tools, factories, machines and money that are used in the production of goods and services

Why are some countries rich and others poor Why are some countries rich and others poor? (low, middle and high income)

Gross Domestic Product: the total value of goods produced and services provided in a country during one year 1750

Population Growth and Important World Events 1750 Note that 1750 is beginning of industrial revolution and productivity takes off. ~1750

Economic Growth Economic Growth: A positive change in the level of production of goods and services by a country over a certain period of time Additional Vocabulary: Utility: something that is useful, profitable or beneficial Marginal Propensity to Save: the proportion of each additional dollar of disposable income that is to save (instead of consume)

Benefits & Side Effects of Economic Growth 1. Increased consumption Consumers can benefit from consuming more goods and services An assumption of economics is that consumption is related to utility, so in theory, with higher consumption levels, there is greater prosperity. 2. Improved public services With increased tax revenues the government can spend more on important public services such as health and education Improved health care can improve quality of life through treating diseases and increasing life expectancy Increased educational standards can give the population a greater diversity of skills and literacy Increased income is related to better education This enables greater opportunity and freedom Education is seen as an important determinant of welfare and happiness

3. Reduced unemployment and poverty Economic Growth helps to reduce unemployment by creating jobs This is significant because unemployment is a major source of social problems such as crime and alienation However, despite rapid increases in economic growth since World War II, areas of high unemployment remain If a section of the population is living in absolute poverty, economic growth enables people to have higher incomes and they will be able to afford the basic necessities of life such as food, and shelter When this happens there is a clear link with improved living standards

Economic growth is like having a bigger pie Economic growth is like having a bigger pie. And a bigger pie leads to larger slices

2.Externalities of growth Side Effects: 1. Diminishing returns Often as economic growth increases incomes, people increasingly save their money (higher marginal propensity to save) this is basically because they struggle to find anything meaningful to spend their money on Once basic needs and wants met, incentive to save increases (If we already have 2 cars, does our living standard really improve if we now have the capacity to own 3 cars?) 2.Externalities of growth Economic Growth causes external side effects such as increased pollution Global warming from pollution is becoming an existential problem for all societies The economic and social costs could be greater than all the perceived benefits of recent economic growth

3. Economic growth can cause increased inequality This is because those who benefit from growth are often the highly educated and those who own wealth Lack of reinvestment of wealth into economy stagnates wellbeing and growth of lower and middle classes 4. Increase in crime and social problems Another paradox that as incomes increase and people are better off the level of crime has increased Inequality associated with increased crime and social problems

5. Higher economic growth has led to more hours worked In the beginning of the industrial revolution, higher growth led to people working lower hours In the past couple of decades higher incomes have actually led to people working longer hours Corporate owners/business owners demand more hours/productivity from workers at the same rate of pay, or lower than before Profit driven 6. Diseases of affluence Economic Growth has enabled improved health care, but at the same time there has been a rise in the number of diseases and illnesses related to increased prosperity An example is obesity. Modern lifestyles and modern diets have created an epidemic of obesity

Productivity: The output produced from a given set of resources in a given period of time. Increasing productivity means that greater output is produced from a given set of resources in a given period of time In recent times, the desire for increased productivity (and profits) has lead to employers to demand longer working hours from employees Increasing number of employers shift production to automation/robots Initial cost of automation offset by not having to pay wages and benefits (health/retirement) to employees