There are 4 Factors of Production: Land or Natural Resources Capital Labor Entrepreneurship
Land or Natural Resources Materials that are NATURALLY MADE and transformed into something else Examples: Oil Timber Land Crops Natural gas Milk
2 Types of Natural Resources NON-RENEWABLE Once used, resource is gone Ex: Oil, Natural Gas, Gold RENEWABLE Can be replaced or renewed or recycled ex: wood, water, crops
LABOR PEOPLE who work to produce a good or service Example: Construction worker Teacher Line cook
CAPITAL MAN MADE instruments that assist in making something else Examples: Hammer Robot Book Computer
Human Capital Investment in education or training for a laborer for more productive laborers
Entrepreneurs People who RISK time and money ($) to start their own business Examples: Oprah Ben & Jerry’s Little girl selling Lemonade Donald Trump
Needs v. Wants Need: something people need that is necessary for survival (ex: air, food, shelter) Want: an item we desire but that is not essential to survival
Three Basic Economic Questions What good and services should be produced? Should money go to schools or a new city park?? Howshould these goods and services be produced? How much of the product are we going to produce? For whom should these goods and services be produced? After goods and services have been produced, society must determine how goods and services should be distributed among members of society…use a price system in the US
Every CHOICE you make has a… Monetary cost: price you paid for a decision ($) Trade off: ALL of the alternative choices Opportunity cost: the best alternative, your second choice
Scenario #1 Dondrick studied for his exam instead of watching American Idol or doing his laundry.
Scenario #2 Iesha has decided to go to college instead of getting a full-time job or joining the Navy.
Scenario #3 Michael bought a pair of Air Jordans instead of buying his mom a birthday gift or a new jacket for himself.
How does an assembly line increase a company’s profits? Divides up the tasks to make a product and allows a worker to specialize in a task to make it faster More product = more profit
Division of Labor Dividing up the tasks required to make a product.
Specialization Giving a worker a specific task to complete Worker becomes a professional in the task
Automation creating a product with the assistance of machinery
Types of Workers Blue Collar: wage-earning workers who wear work clothes ex: mechanics, miners, maids White Collar: office and professional workers who do not wear a uniform. Ex: lawyer, teacher, doctor
Types of Workers Skilled workers: Workers who get special training to do their job, earn more for their education Ex: mechanic, teacher, doctor Unskilled workers: workers do not have any special training that allows them to earn more than a basic wage Ex: fast food employee, cashier
What will happen to a company if they add too many factors of production? Law of diminishing returns At a certain point adding another factor of production will make a company less productive (lose $) Graph What do you think this would look like?
Law of Diminishing Returns The tendency for a continuing effort toward a particular goal to decline in effectiveness after a certain amount of success has been achieved.
How can comparative advantage influence what a company or country produces? Comparative advantage: a country, individual, or company can produce a product at a lower cost than a competitor Produce products for less money to make a greater profit
3 Basic Economic Questions What to produce? How to produce? For whom to produce?
Traditional Economy What is produced? Traditional items are produced according to custom How is it produced? According to custom, no specialization or division of labor For whom is it produced? For the local people
Command / Planned Economy What is produced? Gov’t decides what they believe to be best for the whole country. How is it produced? Gov’t owns companies, dictate how to make things. Use specialization and division of labor For whom is it produced? Produce only what is needed for the country
Market Economy What is produced? Whatever sellers want to produce. Supply and demand are the main factors in decision making How is it produced? Competition exists. Business is run for profit. Specialization, division of labor used. For whom is it produced? Produce for whoever will buy in your country and throughout the world
Mixed Economy Most countries have mixed economies. They combine aspects of the 3 economies to make what is best for them. Ex: United States mostly market (individuals buy and sell) Some command (gov’t rules and restrictions) Little traditional (Native American, Amish communities)