Econ Notes- Scarcity

THERE IS NO SUCH THING AS A FREE LUNCH

Scarcity THE FUNDAMENTAL PROBLEM FACING ALL

SOCIETIES A condition that arises because society does not have enough resources to produce all things people would like to have NOT CAUSED BY SHORTAGE OF MONEY- WHY? Unlimited wants + Limited resources=SCARCITY

Factors of Production Productive resources: LAND CAPITAL LABOR ENTREPRENEURSHIPS Produce and distribute goods and services

1. LAND “Gifts of nature” Natural resources

not created by human effort Fixed- in limited supply (can’t be created by man)

2. CAPITAL Tools, equipment,

and factories in production of goods and services Capital goods vs. financial capital

3. LABOR People w/all their

efforts, abilities, and skills Availability can vary due to population, immigration, famine, war, etc.

4. ENTREPRENEURS “Risk takers” in

search of profits Workers/innovators responsible for much change in out economy Business owners, inventors, investors

3 Basic Questions of Every Economy Help society decide

what needs to be produced Makes decision about how to use its resources 1. WHAT to produce 2. HOW to produce 3. For WHOM to produce

WHAT CHOICES HAVE YOU MADE TODAY?

WHAT DID YOU GIVE UP WHEN MAKING THOSE CHOICES?

Trade-Offs Alternate choices

when you cannot have everything you want. Ex. Spend $50 the

best possible way 

3 options: 1. New Outfit  2. iPOD speakers  3. Full tank of gas 

Opportunity Cost Not $$, but cost of

the next best alternative use of time, money, or resources when one choice is made over another *NEXT BEST ALTERNATIVE, not all the possibilities

Opportunity Cost Ex. Choice was full

tank of gas over new iPOD speakers and new outfit Time, Money, and Resources all have opportunity cost. Examples of Time

and Resources?

Production Possibilities Frontier Model used by economists to illustrate opportunity costs Represents various combos of goods and services an economy can produce when all productive resources are fully employed Ex. The nation of ALPHA has limited supply of resources and produces 2 kinds of goods: guns (military) and butter (consumer)