The 3 basic economic problems:

1. What will be produced? 2. How will it be produced? 3. Who will get what is produced?

Factors of production they are used to produce those things that people desire

Commodities the things produced from the factors of production 1. goods tangible 2. services - intangible

Resources or factors of production: 1. Land source of all materials and food whether in liquid, solid or gaseous form, in or above the earth 2. Labor human effort rewarded by pay; physical and mental talents of the people who have to produce goods and services

Resources or factors of production:

3. Capital comes from the Latin word caput which means head -it refers to the tangible, physical good (capital good) that a person or society creates in the expectation that its use will improve or increase future production. - also the facilities of goods

Capital formation process of creating a capital good Investment common term for capital formation -the process of using resources to produce new capital

Financial investments the purchase of assets such as stocks and bonds

Production the act of making goods and services Consumption the act of using the goods and services to satisfy human wants Social costs total costs to the society measured by the opportunity costs borne by individuals for their own decisions plus additional costs that may be borne by others

4. Entrepreneurship - means that people are combining the other three factors of production to create some products or services to sell.
- comes from the French word entreprendre which means to undertake

Scarcity - refers to the condition that all resources are available only in limited supply. -economic life is characterized by this problem -categorized by 2 factors: 1.unlimited human wants 2. limited quantity of goods Law of Scarcity: states that goods are scarce because there are not enough resources to produce all the goods that people want to consume

Production Possibilities Frontier (PPF)

A simple graphic device that illustrates the principles of constrained choice, opportunity cost, and scarcity -is a graph that shows all the combinations of goods and services that can be produced if all of societys resources are used efficiently

Production Possibilities Frontier (PPF): 3 concepts:

Scarcity - indicated by the unattainable combination above the boundary. Choice - can be seen by the need to choose among the alternative attainable points along the boundary, and opportunity cost. Trade-off a situation in which more of one good thing can be obtained only by giving of another thing.