Factors of Production What to do with the fundamental economic problem of scarcity?

Factors of Production

What to do with the fundamental economic problem of scarcity?

Three Basic Questions

In order to solve the problem of scarcity, economists must attempt to answer three basic questions.

What?How?

For Whom?

What must we Produce?

Society must choose based on its needs

How to Produce?

Society must choose based on its resources

For Whom to Produce?

Society must choose based on its population and other available markets

Technology has fundamentally changed how we live. “I want my MTV”…and my refrigerator, color tv,  and microwave oven.

Which group of people ultimately determines the products that a free enterprise economy produces?

1 2 3 4

25% 25%25%25%

1. Congress2. Local

government3. property owners4. consumers

Factors of Production

Once a society is ready to work on answering the three basic questions, they must then turn to their available factors of production (the resources needed to produce what people want and need).

The society’s limited natural resources Landforms Minerals Vegetation Animal life Climate

Capital

The means by which something is produced Money Tools Equipment Machinery Factories

Capital Goods - Any tangible assets that an organization uses to produce goods or services such as office buildings, equipment and machinery.

Labor (Human Resources)

The workers who apply their efforts, abilities, and skills to production Physical Abilities Mental Abilities

Entrepreneurship

Risk-takers who combine the land, labor, and capital into new products Makes basic business policy decisions Innovator for new products, production

techniques, organizational forms Bears the risk of time, effort, and funds

Production

Creating goods and services—the result of land, capital, labor, and entrepreneurs

Bill Gates

25%

25%25%

25%

1 2 3 4

1. Capital 2. Land3. Labor 4. Entrepreneurship

Factory

25%

25%25%

25%

1 2 3 4

1. Land2. Labor3. Capital4. Entrepreneurship

Iron Ore

25%

25%25%

25%

1 2 3 4

1. Land2. Labor3. Capital4. Entrepreneurship

Assembly line worker

1 2 3 4

25% 25%25%25%

1. Land2. Labor 3. Entrepreneurship4. Capital

Capitalism is a competitive economic system in which private citizens own the factors of production.

1 2

50%50%

1. True2. False

The entrepreneur organizes land, capital, and labor for production in hopes of earning a profit.

1 2

50%50%

1. True2. False