1/4/17: Factors of Production & PPG

Factors of Production & Production Possibilities Graphs

Factors of Production-

1. Land- Natural resources
2. Labor- Work exerted
3. Capital-
1. Human Capital: When people acquire skills & knowledge through experience & education.
2. Physical Capital: Money, tools, buildings, equipment & machinery.
4. Entrepreneurship- Risk taker, innovative.

• Trade-offs: Alternative that we sacrifice when we make a decision.
• Scarcity leads to trade-offs.
• Opportunity Cost: Most desirable alternative given up as a result of a decision.
• Guns are Butter: Phrase; refers to tradeoffs that the government makes when choosing to produce more or less military or consumer goods.
• Thinking at the Margins: Deciding whether to add or subtract one additional unit of some resource.
• Production Possibilities Graph (PPG): Shows an economies’ ways to use economic resources.
• Efficiency: Using resources tin such a way to maximize the production of goods & services.
• Increases Profits
• Underutilization: Opposite of efficiency; leads to decrease in profit.
• Using fewer resources than an economy is capable of using.

Four Key Assumptions (about PPG)-

1. Only two goods can be produced
2. Full employment of resources
3. Fixed resources (factors of production)
4. Fixed technology

3 Types of Movements That Occur Within the PPG-

1. Inside the PPG
2. Along the PPG
3. Shifts of the PPG

Online Resource: http://www.investopedia.com/terms/f/factors-production.asp