Chapter 1 “What is Economics?” Section 1: “Scarcity & the Factors of Production” Chapter 1 “What is Economics?”

Learning Goals Explain why scarcity and choice are basic problems of economics. Explain how land, labor and capital are the three factors of production and identify and the two types of capital. Describe the role of entrepreneurs. Explain why economists say all resources are scarce.

What is the difference between needs & wants? Needs are defined as “something necessary for survival”. Wants are defined as “items we desire but that are not essential to survival”. Can anyone every have EVERYTHING THEY NEED AND WANT? Why?

ECONOMICS Economics is the study of how people seek to satisfy their needs and wants by making choices.

What’s the difference between goods and services? Goods are physical objects such as shoes and T-shirts. Services are actions or activities that one person performs for another.

SCARCITY Scarcity implies limited quantities of resources to meet unlimited wants. Even though Michael Jordan might be able to buy as many basketballs as he wants he can never have an UNLIMITED or ENDLESS supply of them. A limit is ALWAYS eventually reached. Economics is about solving this problem of scarcity, which ALWAYS EXISTS!!

SHORTAGE A shortage is different from scarcity. A shortage occurs when producers will not or cannot offer goods or services at the current prices. Shortages can be long term or short term. What kinds of events can cause a shortage of goods or services? Wars, natural disasters, holidays, public “scares”, etc… can cause shortages to occur.

Resources How do nations or states determine what resources they possess and can use to provide income? Resources used to make ALL goods and services are called Factors of Production. They are land, labor and capital. All of these things must be present for us to function economically.

LAND Refers to ALL NATRUAL RESOURCES used to produce goods and services. What are natural resources? So, if you were the captain of ship what would your “land” be? What if you were a pilot?

LABOR The effort that a person devotes to a task for which that person is paid. A doctor performing surgery, a florist making an arrangement, a realtor selling a house, etc… These are all examples of labor. Turn to your neighbor and come up with a couple more examples of labor.

Capital It is any HUMAN-MADE RESOURCE that is used to produce other goods and services. There are two categories of capital: 1- Physical capital : human-made objects used to create other goods and services. 2- Human capital: the knowledge and skills a worker gains through education and experience.

Physical Capital

Physical Capital It helps people do their jobs. How would a doctor assess a patient without a stethoscope or a blood pressure cuff? When companies or people invest in new physical capital, such as equipment, it helps in many ways. It can give you EXTRA TIME, MORE KNOWLEDGE, AND MORE PRODUCTIVITY and can even SAVE YOU MONEY in the long run.

Human Capital When people invest in themselves by gaining knowledge and skills to enable them to do a particular job. Human capital includes the things a person learns in college, technical school, doing something repeatedly, or any kind of training that makes him/her do his/her job better. I am a developer of human capital.

Take a Minute You’re assignment for the next few minutes is to select a career and with your partner come up with a list of human and physical capital needed to do that career. This will be turned in at the end of class. Make sure all people involved have their name on the paper.

Entrepreneur An ambitious leader who decides how to combine land, labor and capital resources to create new goods and services. They take risks to develop original ideas, start businesses, create new industries and fuel economic growth.