SESSION 3: LIMITED RESOURCES & UNLIMITED WANTS AND OPPORTUNITY COST & TRADE-OFFS Talking Points Limited Resources & Unlimited Wants 1. There are four types of productive resources used to produce goods and services: human, capital, natural, and entrepreneurship. Each type is available in limited amounts to society; in other words, resources are scarce.

2. Human (workers) and capital (machines/tools) resources are the “transformers” in the production process. 3. Natural resources provide a.the raw materials acted upon in production b.the energy to fuel human and capital resources c.direct goods to society, such as UV protection, natural beauty, wildlife habitat, and other ecological services. 4. Someone must coordinate production. In market economies this is done by entrepreneurs; in command economies it is done by central planners. Session 3: Talking Points, Cont’d Limited Resources & Unlimited Wants

5. Money is not a productive resource (currency and coins are not used to produce anything). 6. Society’s wants are unlimited, making its desire for goods and services to satisfy those wants also unlimited. 7. Productive resources are scarce because there are not enough of them to produce the unlimited amounts of goods and services that society wants. This is the fundamental economic problem (Step 1 of the PACED model) faced by society. Session 3: Talking Points, Cont’d Limited Resources & Unlimited Wants

8. An economic system must answer three fundamental questions: a.The allocation question: What goods and services will be produced and in what quantities? b.The production question: How will the goods and services be produced? c.The distribution question: For whom will the goods and services be produced? Session 3: Talking Points, Cont’d Limited Resources & Unlimited Wants

Opportunity Costs & Trade-Offs 1. The next step in addressing society’s fundamental economic problem is to list the possible alternatives (Step 2 of the PACED model). Although societies want a large variety of goods, for simplicity’s sake, let’s assume that we have a society that wants only two goods. 2. A production possibilities curve (PPC) shows the various combinations of these two goods a society can produce given its available productive resources and current technology (methods of converting resources into goods and services); that is, it shows the alternative mixes of goods that are possible to produce at this time. 3. To construct a PPC, first find the “all-or-nothing” extremes and then ask what is the maximum amount of one good that could be produced given a certain amount of the other good to find the remaining combinations. Session 3: Talking Points, Cont’d

4. Combinations outside the PPC are not possible to produce at this time, while those inside the PPC are possible but do not require the use of all of society’s resources. 5. The opportunity cost of a choice is the most-valued alternative that must be given up (it is real goods and services and/or real activities, not simply money or time) when a decision is made. 6. The opportunity cost along a PPC is the amount of one good that must be given up to get more of the other. 7. If all units of resource are homogeneous (equally productive), the opportunity cost is the same for all units of a good (resulting in a straight- line PPC). Session 3: Talking Points, Cont’d Opportunity Costs & Trade-Offs

8. If units of a resource are heterogeneous (not equally productive), the opportunity cost rises as more of a good is produced (resulting in a bow- shaped PPC). 9. The simple message of the PPC is that there is a trade-off: Getting more of one thing (one good) means getting less of something else (another good). Opportunity Costs & Trade-Offs Session 3: Talking Points, Cont’d

Visual 3A: Limited Resources and Unlimited Wants

Visual 3B: The Pig Principle