Economics Factors of Production Focus questions 1 What

Economics: Factors of Production Focus questions: 1. What is the basic fundamental economic problem facing society? 2. What is the difference between a good and a service? 3. What do the following have in common: Bill Gates, Oprah Winfrey, and Dave Thomas? 4. What does TINSTAAFL stand for? 5. List four things you buy on a regular basis. 1

Scarcity l l l the basic economic problem; ongoing gap between limited – scarce – resources and theoretically limitless wants in society. Requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible. Not the same as a shortage: temporary lack of an item 2

Opportunity Cost l l l the value of the next-highest-valued alternative use of a resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else. If you spend $20 on a movie and didn’t spend $15 bowling, $15 was your opportunity cost (the value of what you gave up). 3

Trade-off l l l an opportunity cost, which is the most preferred possible alternative. A trade-off involves a sacrifice that must be made to get a certain product or experience. For example, you might take a day off work to go to a concert, gaining the opportunity of seeing your favorite band, while losing a day's wages as the cost for that opportunity. 4

Factors of Production l Land: natural resources from the Earth 5

Factors of Production l Labor: workers 6

Factors of Production l Capital (physical capital): tools used in production 7

Factors of Production l Capital (human capital): an investment in yourself (education or training) 8

Factors of Production l Entrepreneur: risk taker in search of profit. 9

Types of Goods l Consumer Goods: intended for final use by individuals. 10

Types of Goods l Capital Good: used to produce other goods. 11

Types of Goods l Durable Goods: lasts more than 3 years. 12

Types of Goods l Non-durable Goods: less than 3 years. 13

Conspicuous Consumption l Buying an item to impress someone. 14

Services: hair cuts, lawyer, garbage pick-up, etc. 15

#6 A factory building is considered to be part of which of the following factors of production? l l l Capital Labor Land Entrepreneurship 16

#7 Linda wants to start a health food store and she got a loan from the bank. Linda is considered to be what type of factor of production? l l l Labor Land Capital Entrepreneur 17

#8 Which of the following would be most likely to increase human capital? l l l The development of robotic arms. Flu vaccinations More access to television. Computer solitaire games on the employee’s workstations. 18

#9 Belinda has a business making steel ornamental lawn structures. The arc welder that she uses to join pieces of steel together is considered what? l l l Human capital Entrepreneurship Labor Capital 19

#10 Donald works as an accountant for a large corporation. Which of the following terms would best describe him in this role? l l l Entrepreneur Business Laborer Consumer 20

“TINSTAAFL” l l There’s no such thing as a free lunch! Nothing is free! Everything has a cost, somehow, somewhere. Free phone? The cost is built into your monthly bill. “Buy one, get one free “at a store? Nah…that cost is built into their other prices. 21