1.1 Scarcity
Economists define almost all productive resources as scarce — with
rare exceptions like “established knowledge.”
Which means
• land
• labor
• capital
• entrepreneurship
are all scarce because they are finite, and we need them to produce
the goods and services we want — and our wants are unlimited.
During WWl and WWII, the U.S. needed to shift many resources —
people, factories and even food — over to the war effort. These
resources were diverted from the production of consumer goods.
During the pandemic (2020), we had Shortages of PPE. Some firms
shifted from producing cars to producing ventilators — or from
producing vacuum filters to face masks — to meet the demand.
It’s not the goods and services that are scarce, although they may
be in short supply. It's the resources that are used to produce
them. Every time we choose to use a resource for one purpose, we
cannot also use it for a competing purpose.
Scarcity is the fundamental problem in economics. — If we had
enough resources to make everything we want, we wouldn't face
choices. We wouldn't have to consider costs. But we don't.
, Economic resources can be classified into land, labor, capital and
entrepreneurship.
The four types of economic resources:
Land: all of the resources found in nature
• Payment for the use of land is called rent
Labor: human effort
• Payment for the use of labor is called wages
Capital: machinery, tools, equipment
• Payment for the use of capital is called interest
Entrepreneurship: innovation, ideas
• Payment for entrepreneurship is called profit
— Entrepreneurs are people who figure out new ways to use land, labor,
and capital to produce new goods and services for people.
Keep in mind that not everything is Types of income:
an economic resource. Land: rent
• Consumer goods Labor: wages
• Waste Capital: interest
• Money Entrepreneurship: profit
• Stocks and bonds
Some things (like money) are not considered economic resources.
, Resource Allocation
1.2 and Economic System
Given that resources are scarce and wants are unlimited, every economy
must decide:
• What goods and services will be produced?
• How will they be produced?
• Who will get the goods and services?
Limited productive
resources — land, labor, 1 — Resource allocation question:
capital, entrepreneurship What will be produced?
are used to produce 2 — Production question:
goods and services How will the goods/ services be
produced?
to satisfy society's 3 — Distribution question:
unlimited wants Who will get the goods and
services?
The fact of scarcity means that every economy faces critical decisions
about:
• What to produce
• How to produce
• How to allocate the goods and services
Economists define almost all productive resources as scarce — with
rare exceptions like “established knowledge.”
Which means
• land
• labor
• capital
• entrepreneurship
are all scarce because they are finite, and we need them to produce
the goods and services we want — and our wants are unlimited.
During WWl and WWII, the U.S. needed to shift many resources —
people, factories and even food — over to the war effort. These
resources were diverted from the production of consumer goods.
During the pandemic (2020), we had Shortages of PPE. Some firms
shifted from producing cars to producing ventilators — or from
producing vacuum filters to face masks — to meet the demand.
It’s not the goods and services that are scarce, although they may
be in short supply. It's the resources that are used to produce
them. Every time we choose to use a resource for one purpose, we
cannot also use it for a competing purpose.
Scarcity is the fundamental problem in economics. — If we had
enough resources to make everything we want, we wouldn't face
choices. We wouldn't have to consider costs. But we don't.
, Economic resources can be classified into land, labor, capital and
entrepreneurship.
The four types of economic resources:
Land: all of the resources found in nature
• Payment for the use of land is called rent
Labor: human effort
• Payment for the use of labor is called wages
Capital: machinery, tools, equipment
• Payment for the use of capital is called interest
Entrepreneurship: innovation, ideas
• Payment for entrepreneurship is called profit
— Entrepreneurs are people who figure out new ways to use land, labor,
and capital to produce new goods and services for people.
Keep in mind that not everything is Types of income:
an economic resource. Land: rent
• Consumer goods Labor: wages
• Waste Capital: interest
• Money Entrepreneurship: profit
• Stocks and bonds
Some things (like money) are not considered economic resources.
, Resource Allocation
1.2 and Economic System
Given that resources are scarce and wants are unlimited, every economy
must decide:
• What goods and services will be produced?
• How will they be produced?
• Who will get the goods and services?
Limited productive
resources — land, labor, 1 — Resource allocation question:
capital, entrepreneurship What will be produced?
are used to produce 2 — Production question:
goods and services How will the goods/ services be
produced?
to satisfy society's 3 — Distribution question:
unlimited wants Who will get the goods and
services?
The fact of scarcity means that every economy faces critical decisions
about:
• What to produce
• How to produce
• How to allocate the goods and services
