Factors of production
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Factors of Production. What to do with the fundamental economic problem of scarcity?. Three Basic Questions. In order to solve the problem of scarcity, economists must attempt to answer three basic questions. What? How? For Whom?. What must we Produce?.

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Factors of Production

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Factors of production

Factors of Production

What to do with the fundamental economic problem of scarcity?


Three basic questions

Three Basic Questions

In order to solve the problem of scarcity, economists must attempt to answer three basic questions.

What?

How?

For Whom?


What must we produce

What must we Produce?

  • Society must choose based on its needs


How to produce

How to Produce?

  • Society must choose based on its resources


For whom to produce

For Whom to Produce?

  • Society must choose based on its population and other available markets


Factors of production

Technology has fundamentally changed how we live. “I want my MTV”…and my refrigerator, color tv,  and microwave oven.


Which group of people ultimately determines the products that a free enterprise economy produces

Which group of people ultimately determines the products that a free enterprise economy produces?

  • Congress

  • Local government

  • property owners

  • consumers


Factors of production1

Factors of Production

  • Once a society is ready to work on answering the three basic questions, they must then turn to their available factors of production (the resources needed to produce what people want and need).


Factors of production

  • The society’s limited natural resources

    • Landforms

    • Minerals

    • Vegetation

    • Animal life

    • Climate


Capital

Capital

  • The means by which something is produced

    • Money

    • Tools

    • Equipment

    • Machinery

    • Factories

Capital Goods - Any tangible assets that an organization uses to produce goods or services such as office buildings, equipment and machinery.


Labor human resources

Labor (Human Resources)

  • The workers who apply their efforts, abilities, and skills to production

    • Physical Abilities

    • Mental Abilities


Entrepreneurship

Entrepreneurship

  • Risk-takers who combine the land, labor, and capital into new products

    • Makes basic business policy decisions

    • Innovator for new products, production techniques, organizational forms

    • Bears the risk of time, effort, and funds


Production

Production

  • Creating goods and services—the result of land, capital, labor, and entrepreneurs


Bill gates

Bill Gates

  • Capital

  • Land

  • Labor

  • Entrepreneurship


Factory

Factory

  • Land

  • Labor

  • Capital

  • Entrepreneurship


Iron ore

Iron Ore

  • Land

  • Labor

  • Capital

  • Entrepreneurship


Assembly line worker

Assembly line worker

  • Land

  • Labor

  • Entrepreneurship

  • Capital


Capitalism is a competitive economic system in which private citizens own the factors of production

Capitalism is a competitive economic system in which private citizens own the factors of production.

  • True

  • False


The entrepreneur organizes land capital and labor for production in hopes of earning a profit

The entrepreneur organizes land, capital, and labor for production in hopes of earning a profit.

  • True

  • False


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