GOODS SERVICESPhysical objects produced for sale

Activities done for us by others

All kinds of goods and services are scarce (limited) because all of the resources needed to go into them (land, labor, materials, and machines) are scarce (limited)

Inputs - the scarce resources that go into producing a good or serviceThese resources are

called factors of production

They include: Land, Labor and Capital

Outputs – are the goods and services produced by these resources

The Production Equation represents the process of turning the factors of production (inputs) into goods and services (outputs)

The Production Equation looks like this:

LAND + LABOR + CAPITAL = GOODS AND SERVICES

(INPUTS) = (OUTPUTS)

Some economists consider entrepreneurship ( the willingness to take the risks involved in starting a business) as a fourth factor of production.

Entrepreneurs are said to gather together the Land, Labor and Capital in order to create new goods and services

Land - NOT just real estate!- All gifts of nature used to create

goods and services

Including: air, soil, minerals, forests, plants, Animals, birds, fish, sunlight, wind, geothermal energy, electro magnetic spectrum

Perpetual: Sunlight, Wind – no danger of being used up.

Renewable: forests, fresh water, fish - with planning can be replaced as they are used

Non-renewable: fossil fuels like oil products coal and natural gas - When they are used they cannot be replaced

The quality of this labor depends on:• The size of the available

workforce• The willingness of this

population to do the work required

• The skill of the workers

Labor - The time and effort people devote to producing goods and services.

Human Capital - The knowledge and skills that people gain from education, on-the-job training and experience

EXAMPLES: • A car used for deliveries• The saw and hammer a carpenter uses• Computers• A factory building• Office buildings

Capital (physical capital/capital goods)- The tools, machines and buildings used in the production of goods and services

IMPORTANT SIDE NOTE As technology improves,

capital can replace workers.

EXAMPLE: During the Industrial Revolutionof the 19th Century, textile workers are replaced by Water-driven spinning machines

However, with every new technology comes new kinds of jobs, (People are needed toBuild and repair the new machines.)

An ENTREPRENEUR is an important part of this production process.

Innovator – thinks of ways to turn new inventions, technologies and techniques into goods/servicesStrategist – supplies the vision and plans forA new enterprise to suceedRisk taker – invests time energy abilitiesand money not knowing for sure if the ideawill suceed or fail“Sparkplug” – the driving force

We cannot produce all the goods and servicesthat everybody wants

But by using these inputs more efficiently, We can improve efficiency.

Productivity – the measure of the output ofan economy per unit of input

PRODUCTIVITY = Output---------Input

Productivity can be increased in two ways:

1. Getting more output from the same amount of input

2. Getting the same output from less inputs