What are 7 ways of thinking economically? 10/26 Do Now Our Wants Always Exceed Our Resources We have only limited amounts of resources to use in fulfilling even our fondest desires. With Resources Limited, Scarcity Is Everywhere And yet, goods and services are scarce. They are scarce because the resources needed to produce themland, labor, materials, and machinesare scarce. Why Is What We Want Scarce? Shortages Are Temporary, While Scarcity Is Forever shortage: a lack of something that is desired; a condition that occurs when there is less of a good or service available than people want at the current price.. A shortage ends once production is resumed or new sources of supply are found. In contrast, scarcity is forever. Why Is What We Want Scarce? Scarce How Do We Satisfy Economic Wants? Inputs, Outputs, and the Production Equation input: a resource used in the production process; also known as a factor of production are the scarce resources that go into the process. output: the goods or services generated by the production process. land + labor + capital = goods and services Land: Gifts of Nature! land: all the natural resources, including energy, that are used to produce goods and services; one of the factors of production perpetual resource: a natural resource that is widely available a& in no danger of being used up; examples include sunlight and wind Factors of Production Land: Gifts of Nature renewable resource: a natural resource that, with careful planning, can be replaced as it is used; examples include forests and fresh water nonrenewable resource: a natural resource that cannot be replaced once it is used; examples include oil and coal Factors of Production Labor Resources: Putting Human Capital to Work labor: the time and effort people devote to producing goods and services in exchange for wages; one of the factors of production human capital: the knowledge and skills people gain from education, on-the-job training, and other experiences Factors of Production the correlation between a countrys natural resources and living standards is weak. This explains why a country like Japan, which is poor in resources but rich in human capital, is among the worlds wealthiest nations, while Nigeria, which is rich in oil but poor in human capital, is among the poorest Factors of Production Capital Resources: Tools, Machines, and Buildings financial capital: money used for investment or production physical capital: the manmade objectstools, machinery, buildings, & other goodsused in production; also called capital goods capital goods: the manmade objectstools, machinery, buildings, or other fabricated goods used in production; also called physical capital Factors of Production Capital Resources: Tools, Machines, and Buildings capital: the tools, machines, and buildings used to produce goods and services Putting It All Together: Entrepreneurship entrepreneur: a person who assembles& organizes the resources necessary to produce goods &services Entrepreneurs perform several roles in the production process, including: Innovator, Strategist, Risk taker, Sparkplug. Factors of Production Productivity productivity: a measure of the efficiency with which goods and services are produced, stated as a ratio of output per unit of input Productivity Maximizing Utility: What We Want When We Choose The way economists see the world, people seek to make themselves as well off as possible by maximizing the utility of their decisions. utility: the pleasure, satisfaction, or benefit a person receives from consuming a product or service or from taking an action What Do We Give Up When We Make a Choice? Tradeoffs: What We Give Up When We Choose Societies face tradeoffs as well. The classic example used by economists is the guns-versus-butter tradeoff, in which a society must choose between using its resources to produce guns (military goods) or butter (civilian goods). If the society chooses guns, it maximizes its security, but at the cost of lowering living standards. If it chooses butter, the society maximizes living standards, but at the cost of reducing security. What Do We Give Up When We Make a Choice? What Do We Give Up When We Make a Choice? What are the 3 factors of production? What is productivity? Whats the difference between shortage and scarcity? 10/27 Do Now opportunity cost: the value of the next best alternative that is given up when making a choice; a measure of what you must give up to get what you want Opportunity Cost: The Best Thing We Give Up to Get What We Want opportunity cost: the value of the next best alternative that is given up when making a choice; a measure of what you must give up to get what you want marginal utility: the extra satisfaction or pleasure achieved from an increase of one additional unit of a good or service Making How Much Decisions at the Margin negative utility: a lack of pleasure or satisfaction from consuming a product or service or taking an action; the opposite of utility law of diminishing marginal utility: the general observation that as the quantity of a good or service consumed increases, the benefits for the consumer of each additional unit decrease Making How Much Decisions at the Margin