Productive Resources and allocation of those resources

Standards SSEF1b: Define and give examples of productive resources SSEF1c: List a variety of strategies for allocating scarce resources

Two terms, Same meaning Productive Resources = Factors of Production The Factors of Production/Productive Resources are considered “Scarce Resources”. Unlimited wants & Limited Resources

What are Productive Resources? Anything used to produce goods and services There are 4 types of Productive Resources. We call them the “Factors of Production” Or FOP’s

Factors of Production 1. Land – o “Gifts of nature” o Anything that occurs naturally Examples:

Factors of Production 2. Labor – o Any effort a person devotes to a task for which that person is paid.

Factors of Production 3. Capital – o the tools, machines, and skills/knowledge/training of human beings. Physical Capital – tools, machines, etc. Human Capital – Any skills or knowledge gained by a worker through education and experience.

Factors of Production 4. Entrepreneurship – o someone who takes a risk to start a business by bringing together the other three factors of production in an innovative way.

Need a way to remember? Land, Labor, Capital, Entrepreneurship Just use your CELL (NOT that one!) C apital E ntrepreneurship L and L abor

The Four Factors of Production You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door. Classify the Factors of Production in the following scenario:

The Four Factors of Production Classify the Factors of Production in the following scenario: You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.

Factors of Production Graphic Organizer

Now that we have productive resources…. What do we do with them?

Allocating Scarce Resources Society has to decide how to allocate its scarce resources. Allocate: To distribute according to a plan

Allocation Strategies Supply and DemandAuthority Rationing of a resource based on who can afford the price set by the market. More supply = Lower price Less supply = Higher Price A person or a group of people in power can make and implement a decision quickly. Authoritarian governments decide how to distribute resources and enforces the decision through military/police power

Allocation Strategies Random Selection (Lottery) First come, First Served This gives everyone who wants the resource equal odds of receiving it. This strategy can be inefficient because it may allocate the resource to a purpose or person who does not need it or know how to produce using it. (Ex: Farm land People receive a resource if they are the first one in line for it. Concerts Sporting events Stores

Allocation Strategies Personal CharacteristicContest Resources are distributed based on need or merit. Scholarships Jobs Resource go to the person who wins. Race Academics (valedictorian) Test of knowledge

Thinking on the Margin In economics the term marginal = additional Resources are allocated by weighing the additional benefit vs. the additional cost. This is called MARGINAL ANALYSIS

Marginal Cost v. Marginal Benefit People make decisions based on costs and benefits Rational Decision Making takes place when marginal benefits equal or exceed marginal cost. RDM = MB > MC

Given the following assumptions, make a rational choice in your own self-interest (hold everything else constant)… 1. You want to visit your friend for the weekend 2. You work every weekday earning $100 per day 3. You have three flights to choose from: Thursday Night Flight = $300 Friday Early Morning Flight = $345 Friday Night Flight = $380 Which flight should you choose? Why? 20