FACTORS OF PRODUCTION
1. Natural Resources –or land that has all the gifts of nature including:
– mineral deposits, water, arable land, vegetation, natural forests,
marine resources, other animal life, the atmosphere and the
sun. Minerals are a limited, non-renewable resource
2. Labor - (Human capital)
(knowledge) is better than quantity
3. Capital goods- items used to create goods & services
Entrepreneurship – innovators (creating new products)
– The entrepreneur is the driving force behind production.
– Entrepreneurs introduce new products and new techniques
– Risk takers- the people who take chances. They do this
because they anticipate that they will make profits. But they may
also suffer losses and perhaps bankruptcy.
THE THREE LITTLE
•What do the Three Little Pigs have to do with economics?
•Once upon a time…
THREE LITTLE PIGS
•What do you know about…
•What additional items are needed to build the houses?
•Who is needed to build the houses?
What is Human Capital?
• Training and education by taking classes
and/or job experience that increases a
persons value in the work place.
• Intelligence or physical skill
• Training increases productivity
• People with more education earn more $$
• What are some examples of investing in
• Teachers invest in human capital
WHICH OF THE THREE
LITTLE PIGS HAS THE
MOST HUMAN CAPITAL?
This is a fictional story, so the pigs don’t
need to be human to have human capital.
• Capital goods are tools used in the production of
• Some examples are factories, machinery, tools,
• Capital goods are also any raw materials used to
manufacture goods and services.
• Money is NOT a resource – Money is a means
or medium of exchange
– Money is not worth anything by itself, its value is what
we can exchange the money for.
WHICH OF THE THREE LITTLE PIGS
USED A CAPITAL RESOURCE TO
BUILD THEIR HOME?
GROSS DOMESTIC PRODUCT
• Measure economic progress of a country
• Value of goods and services produced by a
country’s economy during a specific year.
• Germany and the United Kingdom have two of the
strongest economies in Europe so they have a high
• Russia and Ukraine are slowly working their way out
of the effects of being a command economy under
communist control for years.
Who would make more money each year:
a doctor or a data entry worker?
• What would explain this?
• Amount of education or investment in human
• The doctor is required 8+ years of education
after high school and earns $200,000 (average)
• With data entry, only a high school degree is
required. The average salary being $26,000.
HOW TO INCREASE
Invest in Human Capital
Example: Education, Training
Invest in Capital
Example: Factories, Machinery, Computers
Most countries in Europe have good education systems
and strong capital investments
Example: Germany invests in its human capital and capital
good. It has one of the strongest economies. Ukraine’s
educational systems suffered because there was little
money for school. Russia did not invest in capital
investments which left manufacturing plants with old,
outdated technology and machinery.
• They come up with new ideas and use human,
capital, and natural resources to bring ideas to the
• Entrepreneurs are willing to take risks to create the
new product or service.
• Entrepreneurs are valuable because they introduce
• European countries do not have as many
entrepreneurs as the U.S. due to high taxes,
government regulations, and job security.