1. Scarcity and the Factors of Production
Mr. Rosenstock
Economics
San Fernando High School

2. Scarcity Needs vs. Wants
The fundamental problem facing all societies is that of Scarcity
Scarcity is the condition of not having enough resources to produce all the things people would like to have
Scarcity leads to choices
Needs vs. Wants
Needs: Basic requirements for survival like food, clothing and shelter
Wants: Are the way of expressing a need (like wanting pizza to express the need for food)

3. Choices WHAT to produce?
With limited resources, what should society produce?
Where should production go to: food, housing, clothing etc?

4. HOW to produce?
Should we keep more workers employed and use less machines
or, should we use more machines (mass production/automation) and hire less workers?

5. for WHOM to produce?
After the first two questions are solved, society needs to decide for whom to produce
Who are the intended buyers of the goods we produce: the average middle class person, the wealthy, women, children, men, etc.?

6. There Is No Such Thing As A Free Lunch
Because resources are limited, nothing produced is ever really free
Everything costs something

7. Factors of Production
In order for anything to be made there are three requirements:
Land: the “gifts of nature.” Our natural resources

8. Labor: Workers

9. Capital: all of the tools, factories, machines and money that are used in the production of goods and services

10. Why are some countries rich and others poor
Why are some countries rich and others poor? (low, middle and high income)

11. Gross Domestic Product: the total value of goods produced and services provided in a country during one year
1750

12. Population Growth and Important World Events
1750
Note that 1750 is beginning of industrial revolution and productivity takes off.
~1750

13. Economic Growth
Economic Growth: A positive change in the level of production of goods and services by a country over a certain period of time
Additional Vocabulary:
Utility: something that is useful, profitable or beneficial
Marginal Propensity to Save: the proportion of each additional dollar of disposable income that is to save (instead of consume)

14. Benefits & Side Effects of Economic Growth
1. Increased consumption
Consumers can benefit from consuming more goods and services
An assumption of economics is that consumption is related to utility, so in theory, with higher consumption levels, there is greater prosperity.
2. Improved public services
With increased tax revenues the government can spend more on important public services such as health and education
Improved health care can improve quality of life through treating diseases and increasing life expectancy
Increased educational standards can give the population a greater diversity of skills and literacy
Increased income is related to better education
This enables greater opportunity and freedom
Education is seen as an important determinant of welfare and happiness

15. 3. Reduced unemployment and poverty
Economic Growth helps to reduce unemployment by creating jobs
This is significant because unemployment is a major source of social problems such as crime and alienation
However, despite rapid increases in economic growth since World War II, areas of high unemployment remain
If a section of the population is living in absolute poverty, economic growth enables people to have higher incomes and they will be able to afford the basic necessities of life such as food, and shelter
When this happens there is a clear link with improved living standards

16. Economic growth is like having a bigger pie
Economic growth is like having a bigger pie. And a bigger pie leads to larger slices

17. 2.Externalities of growth
Side Effects:
1. Diminishing returns
Often as economic growth increases incomes, people increasingly save their money (higher marginal propensity to save) this is basically because they struggle to find anything meaningful to spend their money on
Once basic needs and wants met, incentive to save increases
(If we already have 2 cars, does our living standard really improve if we now have the capacity to own 3 cars?)
2.Externalities of growth
Economic Growth causes external side effects such as increased pollution
Global warming from pollution is becoming an existential problem for all societies
The economic and social costs could be greater than all the perceived benefits of recent economic growth

18. 3. Economic growth can cause increased inequality
This is because those who benefit from growth are often the highly educated and those who own wealth
Lack of reinvestment of wealth into economy stagnates wellbeing and growth of lower and middle classes
4. Increase in crime and social problems
Another paradox that as incomes increase and people are better off the level of crime has increased
Inequality associated with increased crime and social problems

19. 5. Higher economic growth has led to more hours worked
In the beginning of the industrial revolution, higher growth led to people working lower hours
In the past couple of decades higher incomes have actually led to people working longer hours
Corporate owners/business owners demand more hours/productivity from workers at the same rate of pay, or lower than before
Profit driven
6. Diseases of affluence
Economic Growth has enabled improved health care, but at the same time there has been a rise in the number of diseases and illnesses related to increased prosperity
An example is obesity. Modern lifestyles and modern diets have created an epidemic of obesity

20. Productivity: The output produced from a given set of resources in a given period of time.
Increasing productivity means that greater output is produced from a given set of resources in a given period of time
In recent times, the desire for increased productivity (and profits) has lead to employers to demand longer working hours from employees
Increasing number of employers shift production to automation/robots
Initial cost of automation offset by not having to pay wages and benefits (health/retirement) to employees