Chapter 2 Scarcity and the World of Trade Offs i What is scarcity ii Production factors iii Economic goods iv Opportunity cost v Efficiency 1 What is scarcity a Scarcity situation in which people don t have the means to satisfy all their desires b Production conversion of resources into products that can be used in consumption 2 Factors in production There are 4 factors in production land labor capital and entrepreneurship a Land natural resources available from nature location original fertility and minerals topography climate water and vegetation b Labor productive contributions of humans who work c Capital resources used in production There are 2 kinds of capital physical capital and human capital i Physical capital manufactured resources and equipment used in production ii Human capital accumulated training and education needed to do the job d Entrepreneurship human resources that perform a job organizing managing assembly making decisions and taking risks 3 Economic Goods Goods things from which individuals derive satisfaction or happiness Economic goods goods that the demand exceeds the supply Services tasks performed by individuals often for someone else 4 Opportunity cost a Opportunity cost the next best alternative that must be sacrificed to obtain something or satisfy a want b Production possibilities curve curves representing all possible combinations of maximum outputs that could be produced assuming a fixed amount of productive resources of a given quality c Technology total pool of applied knowledge concerning how goods and services can be produced 5 Efficiency a Efficiency producing maximum outputs at a minimum cost b Productive efficiency when an economy is producing the maximum outputs with their technology and resources c Inefficiency point any point below the production possibilities curve at which the use of resources is not generating the maximum output 6 Other things a Law of increasing additional cost says that opportunity cost increases as people attempt to produce more of that good b Consumption use of goods and services for personal satisfaction c Specialization working at a relatively defined limited endeavor law medicine accounting d Comparative advantage ability to produce a good or service at a lower opportunity cost compared to other producers e Absolute advantage ability to produce more units of a good or service using a given amount of labor or resource inputs or it is also producing the same quantity of a good service using fewer units of labor or resource inputs f Division of labor segregation of resources into different tasks automobile workers put on bumpers another puts on the doors and another windshields