Scarcity Notes Scarcity • Definition- resources are limited while the desire to use these resources are unlimited ▫ In order for a good to be scarce it must: 1. Be limited 2. Be wanted/needed 3. Have value/ be worth something Factors of Production • Definition- what goes in to making a product (money, workers, raw materials, etc) • There are four factors of production: Land, Labor, Capital, and Management/entrepreneurship Factors of Production • Land- natural resources used to make goods and services ▫ Fixed amount or limited supply (scarce) ▫ Reward for owning land= rent ▫ Examples: deserts, fertile land, forests, minerals, livestock, climate Factors of Production • Labor- the effort that people devote to a task that they are paid for ▫ Number may vary over time ▫ Reward for labor= wages ▫ Examples: people Factors of Production • Capital- any human-made resources that are used to create other goods or services ▫ Can be both a factor or production and a product of production ▫ Reward for Capital= interest ▫ Examples: tools, equipment, machinery, factories, money, anything man-made Factors of Production • Entrepreneurship/management- ambitious leader that combines land, labor, and capital to create and market new goods and services ▫ Examples: business owners and inventors Opportunity Cost • Definition • When you decide to do one thing with resources you give up the chance to use that resource for other items • Also referred to as a trade-offs • Your opportunity cost is what you give up in an economic decision. Opportunity Cost ▫ Example of Opportunity Cost ▫ “Guns or Butter” ▫ Definition- economic decision where the government chooses to fund the military or domestic spending Opportunity Cost ▫ Examples of “Guns” or military spending ▫ tanks, aircraft carriers, military bases, weapons, fighter jets, military pay raises, etc. ▫ Examples of “Butter” of domestic spending ▫ Social security, welfare, healthcare for the poor, building bridges and highways, funding for cancer research, money for education, etc Production Possibilities Curve • Shows the various combinations of maximum output that can be produced with limited economic resources. • Visual representation of opportunity cost Production Possibilities Curve • Shifts in the Curve ▫ A shift to the right is caused by an increase in government spending such as a war or a decrease in taxes on businesses ▫ A shift to the left is caused by a recession/depression or an increase in taxes on businesses Production Possibilities Curve • Interpreting a Production Possibilities Curve ▫ A- All resources used for military spending A E ▫ B- All resources are being used D B ▫ C- All resources used for Spending Military C domestic spending Domestic Spending ▫ D- Not all resources are being used efficiently; Unemployment exists ▫ E- Unattainable- not enough resources Cost-Benefit Analysis • Definition- a way of thinking for consumers that weighs the cost of something vs. the benefit received (amount of satisfaction) ▫ Is the product or service really worth buying?.