Factors of Production

What went into making this?

What went into this?

Rubber (from Malaysia)

metal

machines

Someone who put all of this

together.

wood

graphite

4 Categories of Productive Resources (Factors of Production)

LAND LABOR

CAPITAL ENTREPRENUERSHIP

- Natural, renewable resources

-wood, rubber, graphite, land, animals

- Human resources, people

-MENTAL and PHYSICAL

- A produced good used in the production of another good

-Machines, computers, buildings, etc

-The person or group responsible for putting the other 3 together to produce something

Opportunity Costs

Opportunity Costs

OPPORTUNITY COSTS: the value of the NEXT BEST alternative given up when a choice is made– NEXT BEST is key, the cost is not everything you

give up.– Opportunity cost is not always money

Opportunity Costs Examples

Timothy really wants BOTH goods:

$3,500 $1,000

Opportunity Costs Examples

He decides to spend his money on:

What was the price he paid?

What was his opportunity cost?

$3,500

Opportunity Costs

You have $100 to spend at the mall, rank the following in the order (1, 2, 3) you would purchase them.

DVD set of a TV Show($60)New outfit ($85)

New pair of shoes ($65)

Production Possibilities Curve (PPC)

PPC

a graph that shows the trade-off between two production options– A visual representation of OPPORTUNITY COSTS

2 Assumptions:– The company/country is ONLY producing the two

goods on the graph– The company/country desires to use ALL of their

resources

PPC – an example

Suppose a country makes Pencils and Pens.

If they devoted ALL of their resources to pencils, they could make 500 a day

…..to pens, they could make 300 a day

500 300

PPC – an example

500

Pencils

300Pens

The country/business can produce anywhere on the line when they use ALL of their resources

PPC – an example

500

Pencils

300Pens

If the country is producing ONLY pencils, and they want pens, they have to give up pencils.

450

125

200

200

The more pens they want…..

PPC – an example

500

Pencils

300Pens

X

At point X, the country or business is producing below its possibilities and is INEFFICIENT

At point Y, the country or business is producing beyond its possibilities and is NON-SUSTAINABLE.

Y

200

75

Example: Graph this country’s PPC

GOOD A

GOOD B

200 0

180 25

150 50

100 75

25 100

0 110

After graphing, answer these questions:

1. Assume the country is currently producing 180 of good A and 25 of Good B. If the country wants to make 75 of Good B, how many of good A must they give up?

2. If the country was producing 150 of Good A and 30 of Good B, what could you conclude about the country’s economy?

What BEST explains the shift of theproduction possibilities curve fromB1 to B2?

A improvements in agricultural technology

B inflationary increases in process

C higher costs of producing corn

D higher costs of producing wheat

Answer to 2

2. Answer: A Standard: Investment and economic growth

An outward expansion of a production possibilities frontier means greater productivity. One way greater productivity can be achieved is by improving technology.

Question 3

3 Alex and Dylan mow and trim lawns. Currently, each man mows and trims a lawn by himself, but the process takes a long time. They would MOST likely improve their efficiency if

A Alex and Dylan mow a lawn and then trim it together

B Alex mows a lawn while Dylan trims the same lawn

C Alex trims Dylan’s lawn while Dylan trims Alex’s lawn

D Alex and Dylan reduce the number of lawns they mow and trim

Answer 3

3. Answer: B Standard: Benefits of specializationOne of the best ways to improve efficiency is to specialize, which

means each person in a production process concentrates on a specific task. Choice A would still require each man to mow and trim, while choice C simply changes the lawn each man is trimming. Choice D, on the other hand, reduces the total number of lawns they mow but does not improve the efficiency with which they complete their task. Only choice B would be a specialization of labor. In this case, Dylan now does one task in the production process (trims) while Alex does another task (mows). According to economic theory, this specialization will make each man better at his respective task and reduce the time it takes to change from one task to another, thereby increasing their overall efficiency.