MAIN PROBLEM

The fundamental economic problem facing all societies is

Scarcity.

ØScarcity is the condition thatresults for society not havingenough resources to produce all the things people would like to have.

THREE BASIC QUESTIONS

What to Produce

◦ Should they produce

military goods or food?

How to Produce

◦ Should they use

equipment and few

people or use more

people and less

equipment?

For Whom to Produce

◦ How are the things

produced allocated?

THE FACTORS OF PRODUCTION

LAND

The entire material universe exclusive of

people and their products

◦ Everything physical (other than human beings)

which is not the result of human effort is within the

economic definition of land.

– This concept thus includes not merely the dry surface of

the earth, but all natural materials, forces and

opportunities.

– The trees in a virgin forest are land; in a cultivated forest

they are wealth.

LABOUR

All human exertion in the production

of wealth

◦ All who participate in production by

their mental and/or physical effort are

laborers in the economic sense. This

would include their efforts, abilities and

skills.

CAPITAL

Wealth used to produce more wealth, or  wealth in the course of exchange.

◦ A machine is wealth. If used to produce shoes

or other wealth, the machine is wealth that is

capital (capital good). So also would a

merchant’s stock (inventory) of goods in trade

be capital because the final exchange is not

been completed.

ENTREPRENEURS

Some economist include workers that

have a special status because they are

the innovators responsible for much of

the change in our economy.

An entrepreneur is a risk-taker in search

of profits.