Productive
Resources
and allocation of those resources
Standards
• SSEF1b: Define and give examples of productive
resources
• SSEF1c: List a variety of strategies for allocating
scarce resources
Two terms, Same meaning
Productive Resources
=
Factors of Production
The Factors of Production/Productive Resources are
considered “Scarce Resources”.
Unlimited wants & Limited Resources
What are
Productive Resources?
Anything used to produce goods and
services
There are 4 types of Productive
Resources. We call them the
“Factors of Production”
Or FOP’s
Factors of Production
1. Land –
o
o
•
“Gifts of nature”
Anything that occurs naturally
Examples:
Factors of Production
2. Labor –
o the physical abilities and time of human
beings available to produce goods and
services.
Factors of Production
3. Capital –
o the tools, machines, and
skills/knowledge/training of human beings.
• Physical Capital – tools, machines, etc.
• Human Capital – skills, knowledge, and/or
training of individuals.
Factors of Production
4. Entrepreneurship –
o
someone who takes a risk to start a
business by bringing together the other
three factors of production in an
innovative way.
Need a way to remember?
Land, Labor, Capital, Entrepreneurship
Just use your CELL
(NOT that one!)
•
•
•
•
Capital
Entrepreneurship
Land
Labor
Now that we have
productive resources….
What do we do with them?
Allocating Scarce
Resources
• Society has to decide how to allocate its
scarce resources.
Allocate:
To distribute according to a plan
Allocation Strategies
Supply and Demand
Authority
• Rationing of a resource
based on who can
afford the price set by
the market.
• A person or a group of
people in power can
make and implement a
decision quickly.
• More supply = Lower price
• Less supply = Higher Price
• Authoritarian governments
decide how to distribute
resources and enforces the
decision through
military/police power
Allocation Strategies
Random Selection
(Lottery)
• This gives everyone
who wants the
resource equal odds of
receiving it.
• This strategy can be
inefficient because it may
allocate the resource to a
purpose or person who does
not need it or know how to
produce using it. (Ex: Farm
land
First come,
First Served
• People receive a
resource if they are the
first one in line for it.
• Concerts
• Sporting events
• Stores
Allocation Strategies
Personal
Characteristic
• Resources are
distributed based on
need or merit.
• Scholarships
• Jobs
Contest
• Resource go to the
person who wins.
• Race
• Academics (valedictorian)
• Test of knowledge
Thinking on the Margin
• In economics the term marginal = additional
• Resources are allocated by weighing the
additional benefit vs. the additional cost.
• This is called MARGINAL ANALYSIS
Marginal Cost v. Marginal Benefit
• People make
decisions based
on costs and
benefits
• The benefits must
equal or outweigh
the costs.
• Rational Decision
Making takes place
when marginal
benefits equal or
exceed marginal
cost.
RDM =
MB > MC
Given the following assumptions, make a
rational choice in your own self-interest
(hold everything else constant)…
1. You want to visit your friend for the
weekend
2. You work every weekday earning
$100 per day
3. You have three flights to choose
from:
Thursday Night Flight = $300
Friday Early Morning Flight = $345
Friday Night Flight = $380
Which flight should you choose? Why?
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