Obj. 7.01 (Ch. 18.1)
Objective 7.01: Describe the basic factors of production such as land, capital, labor and entrepreneurial
skills and their impact on economic activities
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I. Scarcity and Choice
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Needs and Wants
Need- something necessary for survival
Want- desire not necessary for survival
Economics- the study of how people seek to satisfy needs and wants with limited resources
II. Scarcity
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Goods and Services
Goods- physical objects
Services- actions or activities that one person performs for another
Scarcitylimited quantity of a resource to meet unlimited wants
This is the driving force of economics
III. Factors of Production
Resources used to make all goods and services
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Land- includes all natural resources
Labor- is the effort that a person devotes to a task for which they are paid
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Capital- any human-made resource to invest to produce goods or services
Physical capital- goods that include buildings and tools
Human capital- knowledge and skills a worker gains through education and experience
Entrepreneurs- risk-takers who decide how to combine other factors of production to create
new goods and services
Name that Factor of Production
Bill Gates
Oil
Flight school training
Hammer
The night shift at McDonalds
A forest
10 years experience teaching
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Paper factory
$1000
A 10-year old at a lemonade stand
Obj. 7.02,3: Ch. 18.2
“Trade-offs and Opportunity Costs”
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I. Trade-offs
If a resource is used to produce one good, that same resource cannot be used to produce
something else
Trade-off- the process of giving up one desire in order to satisfy another desire
o Ex: money vs. give girlfriend a present
o Ex: 2 more hours of sleep vs. studying for test
 II. Opportunity Costs
Type of trade-off
Opportunity cost- value of what is given up in a trade-off
o Ex: Dating- cost is not dating some other person
o Ex: College vs. working- cost is $ of college and the amount of $ gained from working
Immediate gratification- when you give up something in the long-term to satisfy an immediate
want
Revenue
Revenue –the total amount of money earned
Total Revenue: number of units sold multiplied by the average price per unit
o 100 pizzas x $10.00 = $1000.00
Marginal Revenue -Total change in revenue that results from selling one more unit of output
o 100 pizzas x $10.00 = $1000.00
o One more pizza sold = $10.00
 $1000.00 + $10.00 = $1010.00
 Marginal revenue= $10.00
Marginal Cost
To predict the revenue that will come from the goods you produce, you must balance costs &
benefits
After figuring out production, you must figure out marginal cost- the price of producing one
additional unit
Ex: it takes $20 to produce 10 toy cars
What is the marginal cost of producing one more car?
$20/10 cars= $2 per car
Marginal Benefits
Benefits of each item produced usually goes down with each item produced
Marginal benefit- additional benefit of each additional unit produced
o Ex: The first 10 toy cars sell for $30
o the next 10 toy cars sell for an additional $15
 20 toy cars sell for $45
o After the first 10 toy cars, what is the marginal benefit of each toy car produced?
o First 10- $30/10= $3
Next 10- $15/10 =$1.50
Cost-benefit analysis
o Choosing an action when benefits are greater than costs
o However, at some point cost may exceed benefit
Diminishing marginal benefit - The marginal benefit of each unit of a good produced
declines as each additional unit is produced
o Ex: A developer wants to build houses on 100 acres of land near a lake
*Houses w/ a lake view cost the most
*Value of the land decreases further away from the lake
*Declining marginal benefit with each house built beyond a certain point
Read p. 506-509
o What is a fixed cost?
o What is a variable cost?
o What two factors are taken into account in a cost-benefit analysis?
o Looking at the graph on page 508, at what point should the farmer stop farming more acres?
o Define diminishing marginal benefit.
o Why does marginal benefit diminish with increases in quantity?
Civics 7.04-5
Consumption and Production
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I. Labor and Consumers
Division of Labor- assigning small number of tasks to each worker and more
efficiently
Specialization- workers focus on one activity only, allows them to work faster
Consumption- consuming or use of economic goods
Consumer sovereignty
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power of consumers to decide what gets produced
producers meet demands or go out of business
II. Labor and Output
Marginal Product of Labor- change in output from hiring one additional worker
Increasing Marginal Returns- increase return for workers
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If there are three tasks in creating a product, MPL increases for each worker
hired
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Specialization increases per worker hired
Diminishing Marginal Returns- decrease return if too many workers
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after first three workers (one for each task), benefits of specialization end
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adding more workers increases total output but at a diminishing rate
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MPL decreases as number of workers increases
Law of diminishing returns: the more you have of something, the less useful it is
Ex: the more workers you hire, because of DMR, at some point each additional worker
will add less output than the worker added before