There is no single most important factor of production. All four factors - land, labor, capital and entrepreneurship - are important resources that work together in a complementary way to produce goods and services in an economy.

1. Introduction to economics

2. Objectives:
At the end of the session:
Differentiate between economics as social Science and
as an applied science
Apply the concept of opportunity cost when
evaluating options and making economic decision

3. What is economics?
economics is the study of scarcity and its
implications for the use of resources, production
of goods and services, growth of production
and welfare over time, and a great variety of
other complex issues of vital concern to society.

4. What is economics?
Economics is a social science that focuses on
the production, distribution, and consumption of
goods and services, and analyzes the choices
that individuals, businesses, governments, and
nations make to allocate resources.

5. Economics is the study of how people allocate scarce resources
for production, distribution, and consumption, both individually
and collectively.
The two branches of economics are microeconomics and
macroeconomics.
Economics focuses on efficiency in production and exchange.
Gross Domestic Product (GDP) and the Consumer Price Index
(CPI) are widely used economic indicators.

6. Scarcity?
Scarcity is one of the key concepts of economics. It means that
the demand for a good or service is greater than the
availability of the good or service. Therefore, scarcity can limit
the choices available to the consumers who ultimately make
up the economy. Scarcity is important for understanding how
goods and services are valued. Things that are scarce, like
gold, diamonds, or certain kinds of knowledge, are more
valuable for being scarce because sellers of these goods and
services can set higher prices.

7. Types of Scarcity
What is Relative Scarcity?
Relative scarcity is where a good is naturally limited in
supply. So, there is only a finite number available.
However, we define relative scarcity as being naturally
limited, but is also scarce relative to demand.

8. What is Absolute Scarcity
Absolute scarcity is where the supply of a good is naturally
limited. In other words, there is nothing humanly possible for
to increase supply. However, absolute scarcity is where the
number of goods cannot diminish. For example, we have an
absolute scarcity of 24 hours each day. This cannot be
nor reduced.

9. What are the 3 Causes of Scarcity?
1. Demand Driven
Resources become scarce when demand increases faster
than supply. As more people buy goods, there are fewer
resources available to others. For instance, let us say
there is a supply of 1 million barrels of oil delivered to
the market – enough to meet demand. However, over
the course of a year, demand increases to over 1.5m
barrels.

10. 2. Supply Driven
When demand is constant, but supply declines, we have a
driven scarcity. However, this is created by limited resources. In
other words, there is a dwindling supply that cannot be
For instance, the Japanese tsunami of 2011 destroyed hundreds
of manufacturing plants which took out a significant source of
supply to both domestic and international markets. Prices
inevitably rose as the economy took the hit.

11. 3. Structural
Structural scarcity occurs when a certain resource is scarce to a
proportion of the population. In other words, there is unequal
access to resources because of political issues or location. For
example, people living in the suburbs may not have the same
access to a doctor, and healthcare as someone living in a city. In
addition, they may not have the same choice of schooling to
their kids.

12. What Is Scarcity In Simple
Words?
In economics, scarcity refers to the limited
resources we have. This can come in the form of
physical goods such as gold, oil, or land. Or, it
can come in the form of money, labour, and
capital.

13. The Economic Problem
Unlimited Wants
Scarce Resources – Land, Labour, Capital
Resource Use
Choices

14. The Economic Problem
What goods and services should an economy produce? –
should the emphasis be on agriculture, manufacturing or
services, should it be on sport and leisure or housing?
How should goods and services be produced? – labour
intensive, land intensive, capital intensive? Efficiency?
Who should get the goods and services produced? – even
distribution? more for the rich? for those who work hard?

15. Choices Cost You!
We have to make economic choices every day.
Some choices are easy because they’re not very
expensive.
Some choices are hard because they cost a lot
of money.

16. Examples of Daily Choices
(Cost a small amount of money)
Choice 1
• Eat school lunch
or
• Bring your lunch
from home
Choice 2
• Go to the movies
or
• Rent a movie and
watch it at home
Choice 3
• Ride the bus to
school or
• Ride with your
parents

17. Examples of Hard Choices
(Involves a lot of money)
Choice 1
• Buy a new car or
• Buy a used car
Choice 2
• Go on a trip or
• Save the money
for college
Choice 3
• Go to work or
• Stay home and
take care of the
children

18. Opportunity Cost
Definition – the cost expressed in terms of the
next best alternative sacrificed
Helps us view the true cost of decision making
Implies valuing different choices

19. Opportunity cost is the value of what is given up when
a choice is made.
Every time you make a choice, you give up something
else.
You might decide to watch TV instead of washing a
neighbor’s car to make some money.
Your opportunity cost is the money you could have
made washing the car!

20. Making Choices
All choices require giving up something
A farmer decides to
grow corn instead
of tomatoes.
 His opportunity cost
is the tomatoes he
could have grown.

21. A girl decides to
babysit instead of
going roller skating
with her friends.
 Her opportunity cost
is the time she could
have had with her
friends roller skating.

22. A dad decides to
watch his son’s
soccer game instead
of earning some extra
money fixing the
neighbor’s computer.
 His opportunity cost
is the money he could
have earned fixing the
computer.

23. Leaders throughout history have had to
make choices that involved opportunity cost.
The kings and
queens decided to
spend money to
search for a short cut
to Asia. They paid for
ships, supplies, and
manpower.
 Their opportunity
cost was the money
that could have be
used for important
things at home or to
trade with other
countries closer to
home.

24. How do price incentives affect people’s
behavior and choices?
A price incentive is used to affect people’s
buying behavior.
Incentives can motivate people to take action!
An offer for “Buy one pizza, get one free,” is a
price incentive.
A sale where items are ½ price is a price
incentive.

25. FOUR CATEGORIES OF ECONOMIC
RESOURCES (4 FACTORS OF PRODUCTION)
The four categories of economic resources are:
Land
Labor
Capital
Entrepreneurship

26. LAND
Land is not just real estate. It is any natural
resource found in nature that can be used to
produce goods and services. The land
category includes things like trees, plants,
livestock, wind, sun, water and minerals.

27. Natural resources are limited. People can't make them, but
they can find new ways of recovering them, such as fracking
for natural gas. While some natural resources are limited,
others are renewable, such as wind, sun and trees.
For Hasty Hare, the natural resources are the land where the
factory is located, the electricity used to run the machines in
the factory and the raw cotton used to make the shoelaces.

28. LABOR
Labor refers to any human
contribution, either physical or
intellectual. Labor takes a natural
resource from its original condition
and transforms it into a capital
good.

29. Usually, when you think of labor, you think of physical
labor like working in a factory, driving a truck to make
deliveries, constructing a building or stacking goods in a
warehouse. These are all activities that contribute to the
production of goods or services. However, labor has
come to rely more on the intellectual contributions rather
than physical labor.

30. Hasty Hare uses its labor to operate the machines
on the production lines, drive the forklifts in the
warehouse and deliver the finished products to
the stores. Labor is also needed to write the
programs for the computers that control the
activities of the robots working on the production
lines.

31. CAPITAL
The first thing to understand about capital is
that it is not money. Money is not a resource. By
economic definition, resources must be
productive, and money does not do that. Money
is a means to move the economy, but by itself, it
doesn't produce anything.

32. Money is used to acquire the productive
resources that are used to produce goods and
services. As an example, refineries purchase oil, a
natural resource, to make gasoline, a capital
good. Developers use funds to acquire property,
a natural resource, to construct an office building,
a capital good.

33. ENTREPRENEURSHIP
Entrepreneurship is the creativity required
to bring all of a company’s resources
together to produce a good or service that
is sold in the marketplace. In a sense,
entrepreneurship is a special form of labor.

34. Entrepreneurs are willing to risk time and
money to start a business with the intention
of earning a profit. They organize the other
factors of production to create a business.
These businesses produce the goods and
services that consumers want to buy.

35. What is the most
important factor of
production?