Topic 1.1 Notes

Topic 1

Section 1.1 Scarcity and the Factors of Production

Need – Something like air, food or shelter that is necessary for survival


Want – An item that we desire but that is not essential to survival

Economics – The study of how people seek to satisfy their needs and wants by making choices


Scarcity – Limited quantities of resources to meet unlimited wants


Goods – Physical objects such as clothes or shoes


Services – Actions or activities that one person performs for another



Shortage – A situation in which a good or service is unavailable

Scarcity always exists while a shortage can last a few days (holiday shopping) to years (wars).

Factors of Production – Land, labor and capital; the three groups of resources that are used to make all goods and services

Land – Natural resources that are used to make goods and services

Natural resources are materials found in nature including fertile land for farming and products that are in or on the land, such as coal, water and forests.

Labor – The effort that people devote to a task for which they are paid

EX: Doctor performing surgery, assembly line worker

Capital – Any human made resource that is used to create goods and services. Fall into two categories: human and physical capital.

Physical Capital – All human-made goods that are used to produce other goods and services.

EX: tools (i.e. sewing machine) and buildings (i.e. shoe factory.)

Makes people more productive-dishwasher saves time, adds knowledge (the family learns more about appliances like washing machines and dryers) and more productivity (extra time and knowledge lets the family do other chores or activities that are beneficial to the family.)

Human Capital – The skills and knowledge gained by a worker through education and experience

EX: Assembly line workers use skills and equipment acquired through experience and training to produce goods.

Entrepreneur – Ambitious leader who combines land, labor, and capital to create and market new goods and services.

EX: Bill Gates, Henry Ford


Economists say that all goods and services are scarce because land, labor and capital used to create them are scarce.

Questions
1. Why is the idea of scarcity a starting point for thinking economically?


2. What role do entrepreneurs play in the economy?


3. Which factor of production is represented by each of the following? (a) an office building; (b) an assembly line worker; (c) a tree used to make paper; (d) unused soil; (e) an artist; (f) a student


4. Why might an economist look at hundreds of cars moving along an assembly line and say, “There is an example of scarcity”?