2. Factors of Production What to do with the fundamental economic problem of scarcity?

3. Three Basic Questions In order to solve the problem of scarcity, economists must attempt to answer three basic questions. What? How? For Whom?

4. What must we Produce?  Society must choose based on its needs

5. How to Produce?  Society must choose based on its resources

6. For Whom to Produce?  Society must choose based on its population and other available markets

7. Technology has fundamentally changed how we live. “I want my MTV”…and my refrigerator, color tv, and microwave oven.

8. Which group of people ultimately determines the products that a free enterprise economy produces? 1.Congress 2.Local government 3.property owners 4.consumers

9. Factors of Production  Once a society is ready to work on answering the three basic questions, they must then turn to their available factors of production (the resources needed to produce what people want and need).

10.  The society’s limited natural resources Landforms Minerals Vegetation Animal life Climate

11. Capital  The means by which something is produced Money Tools Equipment Machinery Factories Capital Goods - Any tangible assets that an organization uses to produce goods or services such as office buildings, equipment and machinery.

12. Labor (Human Resources)  The workers who apply their efforts, abilities, and skills to production Physical Abilities Mental Abilities

13. Entrepreneurship  Risk-takers who combine the land, labor, and capital into new products Makes basic business policy decisions Innovator for new products, production techniques, organizational forms Bears the risk of time, effort, and funds

14. Production  Creating goods and services—the result of land, capital, labor, and entrepreneurs

15. Bill Gates 1.Capital 2.Land 3.Labor 4.Entrepreneurship

16. Factory 1.Land 2.Labor 3.Capital 4.Entrepreneurship

17. Iron Ore 1.Land 2.Labor 3.Capital 4.Entrepreneurship

18. Assembly line worker 1.Land 2.Labor 3.Entrepreneurship 4.Capital

19. Capitalism is a competitive economic system in which private citizens own the factors of production. 1.True 2.False

20. The entrepreneur organizes land, capital, and labor for production in hopes of earning a profit. 1.True 2.False