UNIT 6.1

The Four Factors of Production (CELL)

What is Economics? Unlimited Wants

Satisfied by Limited Resources

Four Factors of Production (CELL)

NEEDS VS. WANTS

Economics is the study of how we make decisions when resources are limited.

You must decide between what you NEED and what you WANT.

Needs are things we need for survival, such as food, clothing, and shelter.

Wants are things that we would like to have, such as cell phones, laptop computers, flat-screen tv’s.

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 BASIC QUESTIONS FOR ANY NATION:

What to Produce? How to produce? For Whom to produce? To answer these questions, economic systems were created.

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 (military) or services for poor people (welfare).

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?

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 ($)

ECONOMIC OUTPUT INCLUDES GOODS AND SERVICES

Goods 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

FOUR FACTORS OF PRODUCTION (CELL)

Capital Entrepreneurship Labor Land

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.

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.

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.

Natural Resources (Land) Natural resources are substances we obtain from

the land, water, and air around us.

People use many of the Earth's natural resources.

All of the products we use have a natural resource base.

Minerals, forest products, water, and soil are just a few of the natural resources humans use to produce energy and make things people

WANT and NEED.

RENEWABLE RESOURCES Some natural

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

Non-renewable Resources

Underground minerals must be

mined or dug up from the earth.

Some of these minerals are gold,silver, salt, iron, diamonds, petroleumand coal.

Oil, minerals, and soil take hundreds, thousands and even millions of years to be made.

These are called non-renewable resources.

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.