01 monday factors of production
TRANSCRIPT
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Short Quiz on slate, use your notes1. Under a command economy, who decides what is
produced and production levels?A. Corporations B. Companies C. Government planners D. Consumers
2. What wasn’t considered when a person stood inline for 3 hours to get a free hamburger?
A. Trade offs other consumers are making B. price of hamburgersC. Price of alternative goods D. Opportunity Cost
3. What is your incentive for improving your GPA?A. Opportunity Cost B. lower student loan interest rateC. Price of college tuition D. scholarships
4. Economists “think at the margin”, explain what that means using at least one example
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What economic opportunities do you see in this picture?
May 2008
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How does the seal show economics?
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New Mexico: The Hug State
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What is this?
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On slates• What are two ways households interact with
firms?
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Circular Flow Model
Households Firms
Product Market (output)
Factor Market (input)
Money $$$ (prices)
Goods/Services
labor
Wages $$
Capital $$
Add gov’t to modelTransfer payments
Rent $$ Dividends $$
land
(costs)
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In ReviewIn our system:
• Firms need households
• Households need firms
• They are interconnected
• Transactions cost
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What keeps our economy moving?
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Factors of Production• Items we need to be in business
• 3 categories + 4th idea
• “inputs”
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Land• Any natural resource
– Copper mine example
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Labor• People working
• Wages $
• Benefits
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Subset of Labor: Human Capital• Skills, experience, education a person has• It’s the reason doctors are paid more than sandwich
artists
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Capital• Goods used to create other goods/services
• Usually the largest cost for entrepreneurs
• Explanation for “Capitalism”
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Let’s build a new Circle K!
• Land
• Labor
• Capital
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New Ideas!Real job creation
• Entrepreneur – French word
• Person who takes a risk combines land, labor and capital to start a new business– OR comes up with a new idea
within a business
Empresario
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“Free Market” Economic System• Laissez Faire – French for “leave alone”
• Read Adam Smith “Wealth of Nations”
• Guided by “invisible hand” – meaning
• Steak clip
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Principles 6 & 7• Describe 5
ways the government could reduce transaction costs in the product and factor markets