Factors of Production Opportunity Costs Marginal Analysis

Money and Markets Market: Anywhere in which exchange takes place Money… look at it this way: What do you “want”??? What is the role of money?

Factors of Production Basic elements used to produce goods and services (aka Resources) Natural Resources (land) Human Resources (Labor) Capital Resources 4* Entrepreneurship

Land (Natural resources) Any materials found in nature That people use to make, or produce, goods and/or services

Labor (Human Resources) Human efforts in the production of goods and services

Capital Resources Physical Capital: Human-made things that is used to produce goods/services Human Capital: The knowledge and skills a worker gains through education and experience.

Entrepreneurship People who organize the factors of production – they decide how to combine resources to create new Goods/services Risk-takers

Opportunity Cost “Most desirable alternative somebody gives up as the result of a decision.” The second best alternative of any choice The COST of a trade-off

Trade-Off The act of giving up one benefit in order to gain another greater benefit In other words: when you make a decision, you must sacrifice something – for example, to come to class today you traded away (sacrificed) some other activity such as staying at home and taking a nap

“Guns and Butter” Guns 20 10 50 25 Butter

Marginal Analysis Cost/Benefit analysis: Page 11 Marginal Cost: Extra cost of adding one unit Marginal Benefit: Extra benefit of adding one unit

Marginal Analysis MB MC Quantity High MC MB=MC Rational Choice! Low MB 50 25 Quantity