Economics The allocation of scarce resources Land labor capital and entrepreneurship 4 factors of production and their payment To land goes rent to labor goes wages to capital goes interest to entrepreneurship goes profit To individuals time and money How do you decide what you are going to do today You ask yourself because you have a lot of options but limited resources How do you choose prioritize your resources Economics says you should prioritize your resources based on opportunity costs Opportunity cost what you would have done if you didn t buy X Used to determine how to allocate scarce resources Most important tool in economics Ultimately must have a dollar value Scarcity enables a society to move from the law of the jungle to how things are today Three methods that society has used to allocate scarce resources 1 Tradition Do things the way you ve always been doing them 2 Political method When a group of people or one person who call themselves leaders make decisions What to produce with resources and how to distribute them People accept this 3 Market system Supply and demand capitalism free enterprise price system Most used throughout the world today Ex We make bicycles The market decides how many we make and who gets them Production possibilities curve Chart represents all the possible combinations of butter produced versus guns produced Pick a spot that gives you the most benefit Spot determined by the political method generally Y You want to stay on the curve because that is the most efficient use of your money Incur the lowest opportunity cost by staying on the line sacrifice as few peacetime goods as possible
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