1. The Four Factors of Production (CELL)
Unit 7.1
The Four Factors of Production (CELL)

2. Scarcity The fundamental problem is scarcity.
When things are scarce, we do not have enough resources to produce all the things that we would like to have.
Because of scarcity, we must make choices among alternatives.

3. Scarcity forces

4. Economics is the study of choice and how consumers make decisions.

5. 3 Basic Questions for any nation:
1.What?
2.How?
3.For Whom?
To answer these questions, economic systems were created.

6. What to Produce?
Society must decide what to produce with its limited resources.
For example, society may have to choose whether to produce goods for defense or services for poor people.

7. Military Defense is very expensive

8. How to Produce? Society must decide how to produce something.
For example, should we accept more pollution from factories in exchange for greater output of products?

9. Factories can cause a lot of Pollution

10. For Whom to Produce?
Society must decide for whom to produce a product.
Who will receive the goods and services?
In the United States, most goods and services are distributed through the price system

11. Economic Output Includes Goods and Services
Tangible Products
TV, Car, Phone, Food, Clothing, any finished product that you can buy
Services
Work Performed for someone else
Mechanic, piano instructor, babysitter, anything where someone is offering their expertise

12. Yesterday, when I was walking through town, I decided to go to “Bubba’s Ice Cream”. My friend Diana works there. Diana provides a service to me because she serves me ice cream. A service is any kind of work performed for others. The ice cream is a good. A good is something you can feel, or any kind of merchandise.
Bubba’s Ice Cream

14. Four Factors of Production (CELL)
Capital (is not money but is new machines and factories)
Entrepreneurship
Labor
Land

15. Capital Also known as capital goods
Includes tools, machinery, and buildings used to make products.
Capital goods are unique because they are themselves produced. You have to build a building.
Consumer goods satisfy wants directly; capital goods do so indirectly by aiding production of consumer goods.

16. Machines in Factories would be a capital good

17. Entrepreneurs
Entrepreneurs are individuals who start new businesses, introduce new products, and improve management techniques.
They are innovative and willing to take risks.
They drive the economy because they use factors of production to produce new products.

18. Jerry Richardson is the owner of Hardee’s and the Carolina Panthers
Famous talk show host Oprah Winfrey founded Harpo Productions in 1986 and now is worth $2.7 billion.

19. Labor Labor is the nation’s workforce. These are the people who work.
It includes the physical and mental talents of the people who help produce goods and services.
Factors such as population growth, education, and war affect the quantity and quality of labor.

20. Toyota Plant Workers are considered labor.

21. Types of Workers
White Collar – a salaried professional (doctor, lawyer, teacher, accountant, etc)
Blue Collar – a worker more associated with manual labor or the working class (mechanic, factory worker, construction worker). Normally, blue collar employees are paid hourly.
Skilled workers – a worker who is trained to do a certain job. In most cases, you will need to attend college, university, or technical school.
Unskilled workers – workers who do not need to receive a special training to do their job.

22. Blue collar workers are associated more with manual labor and hourly pay. White collar workers are considered to be more “professionals”.

24. Renewable Resources
Some natural resources can be reproduced within a few years or decades. These are called renewable resources. Trees, water, plants, and air are examples of renewable resources.

26. Productivity
When a nation’s output increases over time, the economy grows.
This means the circular flow becomes larger.
Productivity is a measure of the amount of output produced by a given amount of inputs in a specific period of time.
It reflects how EFFICIENTLY resources are being used.