Economizing ProblemEconomizing Problem

““Scarcity”Scarcity”

Scarcity - When There Is Not Enough Scarcity - When There Is Not Enough For Everyone – Someone SuffersFor Everyone – Someone Suffers

The Economizing Problem is that;The Economizing Problem is that;

SOCIETY HAS VIRTUALLYSOCIETY HAS VIRTUALLY UNLIMITED WANTS...UNLIMITED WANTS...

BUT LIMITED OR SCARCE RESOURCES!BUT LIMITED OR SCARCE RESOURCES!

The economizing problem is one of deciding how to make the best use of limited resources to satisfy virtually

unlimited wants.

Require resources to produce. Require resources to produce. So we call these resources the So we call these resources the

factors of production.factors of production.

FoodFood ClothingClothing ShelterShelter

All goods and services All goods and services

.

1. Land Land [natural resourcesnatural resources] – Nature’s itemsNature’s items.. A. In the earthIn the earth - coal, oil, water, fossil fuels B. On the earthOn the earth – vegetation and water C. In the atmosphereIn the atmosphere – sun, wind, and rain

The Four Factors of ProductionThe Four Factors of Production

Land is the starting pointstarting point of all production.” “ “Stuff”Stuff” from which everything is made.

WaterWaterWindWindSunSun Fossil fuelsFossil fuels

2. Labor [human resources]- the “brain-power” and “muscle-power” of human beings. A. Physical – pro basketball players & lumberjacks B. Intellectual – ministers, doctors & lawyers

Labor is the most important resource accounting for 70% of input cost in the U.S. in the U.S.

““Financial CapitalFinancial Capital” ” = money, stocks, bonds. These are not economic resources because they produce nothing.

3. Capital Resources – all “man-made inputs” used to produce consumer products (machinery, physical plants, & tools). A. Capital goods – goods [machinery, buildings, & tools] used to produce other goods. [crane, Ford plant, hammer] Capital goods represent future wealth, or economic growth. B. Consumer goods – products meant for “immediate consumption”. Consumer goods represent current wealth or standard of living. A product can be a both a consumer & a capital good, depending on its use (using your personal car to delivers pizzas.)

4. Entrepreneurship – the drive to introduce a new product or start the new business. Entrepreneurs combine land, labor, & capital to produce products. They are the “Sparkplugs” of economic growth. Their job is to innovate.

These resources are not free. They require These resources are not free. They require payment to use.payment to use.

RENTAL INCOMERENTAL INCOME

INTEREST INCOMEINTEREST INCOME

WAGESWAGES

PROFIT & LOSSPROFIT & LOSS

LANDLAND

CAPITALCAPITAL

HUMAN RESOURCESHUMAN RESOURCES

LABORLABOR

ENTREPRENEURENTREPRENEUR

Property ResourcesProperty Resources

The EndThe End