Scarcity and the Factors of Production

What is Economics? Economics is the study of how people makes choices to satisfy their needs and wants. The basic problem is limited resources to meet unlimited wants

Scarcity and Economics A scarcity occurs when there is limited quantities The needs or desires are unlimited Once the resource is gone, it is gone for good Thus you can’t always get what you want

Shortage Shortage occurs when goods or services are no longer available to the current prices The shortage will eventually be replaced The laws of supply and demand are used to understand shortages

The Factors of Production There are three factors of production Land Labor Capital

Land All natural resources that are used to produce goods and services Fertile land for farming Products in or on the land

Labor Any effort a person devotes to a task for which that person is paid Medical aid provided by a doctor Tighten of a clamp by a production line worker Repair of a television

Capital Any human-made resources that is used to create other goods and services Capital can be: Physical and Human

Physical Capital Human-made objects to create other goods and services Building Tools

Human Capital People investing in themselves Knowledge and skills gained These are gained through education and experience

Factors of Production in Action Land Popping Corn Vegetable Oil Labor The human effort needed to pop the corn Capital Corn-Popping Device

Entrepreneurs They are ambitious leaders who decide how to combine the factors of production They take risks to develop original ideas, start businesses, create industries, and fuel the economy Steve Jobs Steve Ellis