Why are all goods and services scarce?Why are all goods and services scarce?

Because all resources are scarce.Because all resources are scarce.

Unlimited wants and limited resources Unlimited wants and limited resources

Explain the difference between Explain the difference between scarcity and a shortage.scarcity and a shortage.

Shortage:Shortage: When people have trouble supplying the When people have trouble supplying the

goods and services at the current price.goods and services at the current price.

ScarcityScarcity A limited number of goods or servicesA limited number of goods or services

Factors of Production:Factors of Production:Resources used to make all goods and services.Resources used to make all goods and services.

LANDLAND LABORLABOR CAPITALCAPITALNatural Natural resources – resources – land, coal, land, coal, water, forests, water, forests, etc.etc.

Workers Workers (effort put into (effort put into production)production)

Human made Human made resources.resources.

PhysicalPhysical = = Buildings, Buildings, tools, etc.tools, etc.

HumanHuman = = Knowledge, Knowledge, skills, etcskills, etc

Human CapitalA persons knowledge and skills

Physical Capital Buildings, tools )saws, hammers etc.)

Elements of a command/centrally Elements of a command/centrally planned economy. What are some planned economy. What are some

negatives to this system?negatives to this system?

A central government owns all land and A central government owns all land and capitalcapital

A central government makes all economic A central government makes all economic decisionsdecisions

Each person is assigned a jobEach person is assigned a job

Low production Low production

What are the three key What are the three key economic systems?economic systems?

What to produce?What to produce?

How to Produce?How to Produce?

For Whom to Produce itFor Whom to Produce it

Elements of Free Market Elements of Free Market

Encourages growthEncourages growth

Adam Smith key figureAdam Smith key figure

Private profit motive Private profit motive

Profit on sales Profit on sales

Often some government is needed to Often some government is needed to provide for things the economy does not provide for things the economy does not (welfare, wage laws etc.)(welfare, wage laws etc.)

Traditional Economy Traditional Economy

A society where the economic questions A society where the economic questions are answered through culture and are answered through culture and tradition.tradition.

Children take on the jobs of their parentsChildren take on the jobs of their parents

Farming is typically the key profession Farming is typically the key profession

What is the function of an What is the function of an economic system? economic system?

To produce and distribute goods and To produce and distribute goods and services services

What are some difficulties in a What are some difficulties in a pure free market system?pure free market system?

No government interventionNo government intervention Government is needed to provide for things Government is needed to provide for things

that the market does not address. that the market does not address.

Definitions:Definitions: Land: any natural resource (i.e: iron, ore, fertile soil, Land: any natural resource (i.e: iron, ore, fertile soil,

water etc)water etc) Labor - the paid effort of people to do a particular taskLabor - the paid effort of people to do a particular task Capital: Any resources made by humans and used to Capital: Any resources made by humans and used to

create other goods and resources. create other goods and resources. Shortage- the good is available but cannot be brought Shortage- the good is available but cannot be brought

to the consumer ; When people have trouble supplying to the consumer ; When people have trouble supplying the goods and services at the current price.the goods and services at the current price.

Efficient economy- uses its resources to make the most Efficient economy- uses its resources to make the most goods and services (typically at the highest price)goods and services (typically at the highest price)

Entrepreneur -Ambitious leaders who combine land, labor Entrepreneur -Ambitious leaders who combine land, labor and capital to create and market new goods and services.and capital to create and market new goods and services.

Competition- the struggle between various producers for Competition- the struggle between various producers for consumers business.consumers business.

Adam Smith- Free market Economists. Adam Smith- Free market Economists. Laissez Faire - hands off the Economy Laissez Faire - hands off the Economy Goods- Physical objects that can be exchangedGoods- Physical objects that can be exchanged Services- Actions or activities that one person performs Services- Actions or activities that one person performs

for another. for another. Factors of production – Land, Labor and Capital Factors of production – Land, Labor and Capital Guns v. Butter- how a nation allocates its resources- Guns v. Butter- how a nation allocates its resources-

either military goods or consumer goods either military goods or consumer goods EconomicsEconomics

The study of how people use their limited resources to The study of how people use their limited resources to meet unlimited needs.meet unlimited needs.