THERE IS NO SUCH THING AS A FREE LUNCH

ScarcityTHE FUNDAMENTAL PROBLEM FACING

ALL SOCIETIESA 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 ProductionProductive resources:

LANDCAPITALLABORENTREPRENEURSHIPS

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 profitsWorkers/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 produce2. HOW to produce3. 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 CostNot $$, 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 CostEx. 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 FrontierModel 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)