Overview
This lecture introduces the concept of scarcity and the factors of production, distinguishes scarcity from shortage, and covers trade-offs, opportunity cost, and the production possibility curve.
Scarcity and Factors of Production
- Scarcity occurs when unlimited wants face limited resources.
- The three main factors of production are land (natural resources), labor (human effort), and capital (tools, machinery, and money).
- Societies must answer: What to produce? Who is the production for? How to produce?
Scarcity vs. Shortage
- Scarcity is a permanent condition where resources are always limited (e.g., diamonds).
- There is always a price and value associated with scarce products.
- Shortage is temporary and can be resolved through increased production or substitutes (e.g., toilet paper during covid-lockdown).
Making Choices: Trade-Offs and Opportunity Cost
- Scarcity requires making choices efficiently based on cost, needs, and wants.
- Trade-offs are alternative options you give up when making a choice.
- Opportunity cost is the value of the next best alternative given up.
Production Possibility Curve
- The production possibility curve (PPC) shows maximum output possibilities for two goods using all resources efficiently.
- Example: Producing more videos means fewer hats can be produced, highlighting resource allocation limits.
Key Terms & Definitions
- Scarcity β limited resources against unlimited wants.
- Factors of Production β land, labor, and capital used in production.
- Shortage β temporary lack of a product that can be resolved.
- Trade-Off β giving up one thing to get another.
- Opportunity Cost β the value of the next best alternative given up.
- Production Possibility Curve (PPC) β graph showing trade-offs between two goods using maximum resources.
Action Items / Next Steps
- Review examples of trade-offs and opportunity costs.
- Study the production possibility curve and practice drawing your own with two goods.