1. Factors of Production

2. HOW ARE GOODS PRODUCED?
Factors of production
The productive resources used to produce goods and services.
Factors of production are grouped into four categories:
Land (Natural Resources)
Labor (Human Resources)
Capital
Entrepreneurship

3. HOW ARE GOODS PRODUCED? Land
What Raw materials are needed to produce your product?
The “gifts of nature” that we use to produce goods and services. All the things we call natural resources.
Comes from the air, water, or the earth
Land, minerals, water

4. Natural Resources Renewable SOURCES Water, air growing things
Non-Renewable SOURCES
Coal, oil

5. Land, Natural Resources, Raw Materials
What Raw materials are needed to produce your product?
The “gifts of nature” that we use to produce goods and services. All the things we call natural resources.
Comes from the air, water, or the earth
Land, minerals, water

6. Examples
Bees
Water
Soybeans
Granite
Tea leaves

7. Factor 1: Natural Resources
Nature supplies raw materials necessary to make things
These raw materials are called Natural Resources
Example: Chicken noodle soup contains chicken meat, spices, water, and vegetables, all of which came from the nature

8. HOW ARE GOODS PRODUCED? Labor
What will your employees have to do to create your product?
What work will need to be done to turn your raw material into your finished product
Work time and work effort that people devote to producing goods and services
People’s efforts, labor
Effort can be physical or mental

9. Labor Examples Ticket sellers Automobile designers Machinists
Make up artist
Lumber jack

10. Factor 2: Human Labor
Human effort used to produce goods and services is called labor
Labor can be physical or mental
Example: to the soup, farmers raise the animals and crops, a truck driver drives them to a factory, and workers operate machinery to mix and can it (physical labor)
Someone has to design the machines, and think of a recipe for the soup (mental labor)

11. HOW ARE GOODS PRODUCED? Capital
equipment and people will you need to create your product
Goods made by people and used to produce other goods and services
Tools, instruments, machines, buildings, and other constructions that have been produced in the past and that businesses now use to produce goods and services.

12. Capital
Physical capital: What tools, machines and factories will you needed to create your product
Financial capital: funds the firm use to buy physical capital
Human capital: What knowledge, skills, education and experience will your employees need to have in order to produce your product (for example: a seamstress , a chemist, a computer technician )

13. Factor 3: Capital Resources
Producing goods and services requires tools and equipment
The buildings, machines, supplies, etc. used to produce are called capital resources, or capital goods
Examples: the truck used to drive to the factory, the machines used to can the soup, and the factory building itself

14. HOW ARE GOODS PRODUCED? Entrepreneurship
The human resource (PEOPLE) that organized and combines labor, land, capital.
The quantity and quality of entrepreneurship is hard to describe and measure.
But we can easily recognize brilliant entrepreneurs by their enormous financial success.
Sam Walton (Wal-Mart), Bill Gates (Microsoft), and Michael Dell (Dell Computers) are examples of outstanding entrepreneur's.

15. Influences on Entrepreneurs Decision Making
To realize a profit, produce good/service at a cost lower than the market price for the good or service.
Profit is the money left over from selling a good or service after the cost of buying productive resources have been paid.
Minimize the use of scarce resource in production
Maximize the productivity of the factors used in production to keep cost as low as possible.

16. Entrepreneurship: The 4th Factor
Making the other 3 factors of production into something useful often takes creativity and some risk
Entrepreneurship is the factor of production that ties the others together
Examples: Someone has to decide what to name the soup, where to sell it, and how much to charge

17. Stop and Think If you started your own business what would it be?
What are some of the 4 Factors of production you would need.
2 examples for each
Land
Labor
Entrepreneur
Capital

18. Corporations- 20% of Business 74%-profits

19. Corporation- Set up Stock: shares of ownership in the corporation.
Literally sell you a piece of their company and use your money invested to further the company
Stockholders (shareholders): owners of stock.
Reasons to own stock:
Dividends: share of corporate profits paid to stockholders
Speculation: buy in hope that price of stock will increase.

20. How the Government influences how I make money.
Economic Systems
How the Government influences how I make money.

21. Quick Review:
Take out a sheet of paper and answer the following questions:
What are Goods?
What are Services?
What are Resources?
What is Scarcity?

22. Economic Systems
Def. The method used by a society to produce and distribute goods and services.
Or, How the government tells us what we can get and how to get it!

23. All Economic Systems Must Consider the Following Questions:
What goods and services to produce?
How will they produce them?
Who will get them?
How much will they produce now, and how much later?
Each economic system answers these questions in a DIFFERENT WAY.

24. Types of Economic Systems
There are 3 basic types of economic systems.

25. 1. Traditional Economy
Economic questions are answered by habits and customs (the way it has always been done)
Children work the same jobs parents worked, often farming or hunter/gatherer
Fear Change!
Ex. Eskimos, the Amish,
Pigmies, Bush People

26. 2. Command Economy The government answers the basic economic questions
Advantages: able to act quickly in emergencies, provide for all people equally
Disadvantages: Inefficient, no incentive to work hard or be creative
Ex. Communist Countries (China, Vietnam, North Korea, former
Soviet Union, Cuba)

27. 3. Free Market Economy
Economic questions are answered by individual buyers and sellers.
Supply and demand influence economy
People act out of self interest; motive for profit (money) drives the economy
Also known as FREE ENTERPRISE or CAPITALISM
BASED ON LAISSEZ-FAIRE
Ex. The United States, Western
Europe, Japan

28. I lied!
I said there were 3 types of economic systems, but there is a 4th!
Mixed Economy: No economy is pure market, pure command or pure traditional, elements of each appear in all economies, some have more elements of one economy than another.
Market Mixed Command
USA Great Britain China

29. American Mixed Economy
While the United States is mostly a free market economy, it does have elements of a command economy.

30. Features of American Free Market Economy
Economic Freedom: individuals have the right to choose
Competition: more than one producer of good/services insures choice
Private Property: individuals have the right to own their own property, including business

31. Features of American Free Market Economy (cont)
Self-Interest: individuals make
decisions based on what is best for them
Voluntary Exchange: individuals may freely buy and sell goods
Profit Motive: individuals are driven by a desire to profit (make money)

32. Features of American Command Economy
Government regulation of some business practices
Ex. Wages, labor hours,
safety practice.
Government limits certain choices
Ex. Cannot buy or produce certain goods/services
Government provides aid to the needy
Ex. Medicare, Medicaid, welfare

33. My Pizzeria
How would my pizzeria function under different economic systems?

34. My Pizzeria in a Free Market
I answer the basic economic questions!
I determine how much cheese and pepperoni goes on the pizza
I determine the quality of the cheese and pepperoni
I set my employees wages
I set my business hours

35. My Pizzeria in a Command Economy
The government answers the basic economic questions
The government sets the amount of cheese and pepperoni on each pizza
The government determines quality of cheese and pepperoni
The government sets employees wages
The government sets business hours
Problem: What does the government know about pizza?

36. My Pizzeria in a Mixed Economy
The Government and I both answer the basic economic questions
I determine the amount of cheese and pepperoni on the pizzas; government determines the quality of cheese and pizza
I set employee wages; government sets minimum wage for employees
I determine business hours; government determines whether I am safe to be open or not

37. United States Market Economy
Most goods and services are offered by private companies
Citizens choose what to buy and sell

38. United States Democracy
Citizens vote for elected officials
3 branches of government
Lead by a president (4 year term)