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Section 1.2 Introduction to Economics
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employees, sales people selling products in retail
stores, and all other business activity performed
by people.
As a factor of production, capital is all the
tools, equipment, and machinery used to produce
goods or provide services. Capital goods are the
products businesses use to produce other goods.
Capital goods are used to make final products,
which are then sold to consumers.
The final factor of production is
entrepreneurship. Entrepreneurship is the
willingness and ability to start a new business.
Entrepreneurs are people who start a new
business or purchase an existing business.
They organize the other three factors of
production to produce a good or service and
earn a profit.
Economic Problem
Individuals, businesses, and governments
must constantly make choices about using limited
resources to satisfy unlimited wants. This is
known as the basic economic problem. Scarcity
develops when demand is higher than the
available resources, as illustrated in Figure 1-4.
Every economic decision has a cost. Scarcity
forces choices to be made. Choosing one option
means giving up other options that may have
been available. A trade-off is when something is
given up in order to gain something else. When
a trade-off occurs, an opportunity cost is created.
Opportunity cost is the value of the next best
option that was not selected. Value is the relative
worth of something.
Goodheart-Willcox Publisher
Figure 1-3 The factors of production include the economic resources of land, labor, capital, and entrepreneurship.
Factors of Production
Land Labor Capital Entrepreneurship
• Soil
• Water
• Minerals
• Plants
• Animals
• Climate
• Agricultural workers
• Construction workers
• Factory workers
• Miners
• Professionals
• Service workers
• Tools
• Equipment
• Machinery
• Buildings
• Vehicles
• Transportation systems
• Utilities
• Business owners
Goodheart-Willcox Publisher
Figure 1-4 Scarcity is the result of an imbalance of limited resources and unlimited wants.
Limited
Resources
Unlimited
Needs and
Wants
Scarcity
Individuals, businesses,
and governments must
make choices
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