The Economizing Problem--Scarcity

Chapter 2

Fundamental fact: Scarce Resources Economic resources are limited relative to

wants Economic resources are called the factors of

production: land, labor, capital and entrepreneur

Efficiency Full production implies two types of efficiency

ALLOCATIVE efficiency means that resources are used for producing the combination of goods and services most wanted by society

PRODUCTIVE efficiency means that least costly production techniques are used to produce wanted goods and services

Full production means producing the “right” goods (allocative efficiency) in the “right” way (productive efficiency)

**4 Factors of Production1. land

Must benatural & is limited

2. capital

Must be usedfor production

3. labor

The work force (humancapital)

4. Entrepreneurs

Risk takers insearch of anew business

Chris DeWolfe & Tom AndersonMy Space Mark Zuckerburg

FacebookWarren Buffett--Berkshire Hathaway

Phil KnightNike

Mark CubanBroadcast.com

Sean CombsBad Boy Records

Pierre OmidyarEbay

Production Possibility Frontier or Curve See graph

Circular Flow See document manager or board