Factors of Production
What to do with the fundamental
economic problem of scarcity?
Three Basic Questions
In order to solve the problem of
scarcity, economists must attempt
to answer three basic questions.
What?
How?
For Whom?
What must we Produce?
 Society must choose based on its
needs
How to Produce?
 Society must choose based on its
resources
For Whom to Produce?
 Society must choose based on its
population and other available
markets
Technology has fundamentally changed how we
live. “I want my MTV”…and my refrigerator, color
tv, and microwave oven.
Which group of people ultimately determines
the products that a free enterprise economy
produces?
1. Congress
2. Local
government
3. property owners
4. consumers
25%
1
25%
2
25%
3
25%
4
Factors of Production
 Once a society is ready to work on
answering the three basic questions,
they must then turn to their available
factors of production (the
resources needed to produce what
people want and need).
 The society’s limited natural
resources





Landforms
Minerals
Vegetation
Animal life
Climate
Capital
 The means by which something is
produced





Money
Tools
Equipment
Machinery
Factories
Capital Goods - Any
tangible assets that an
organization uses to
produce goods or
services such as office
buildings, equipment
and machinery.
Labor (Human Resources)
 The workers who apply their efforts,
abilities, and skills to production
 Physical Abilities
 Mental Abilities
Entrepreneurship
 Risk-takers who combine the land,
labor, and capital into new products
 Makes basic business policy decisions
 Innovator for new products, production
techniques, organizational forms
 Bears the risk of time, effort, and funds
Production
 Creating goods and services—the
result of land, capital, labor, and
entrepreneurs
Bill Gates
1. Capital
2. Land
3. Labor
4. Entrepreneurship
25%
25%
25%
25%
1
2
3
4
Factory
1. Land
2. Labor
3. Capital
4. Entrepreneurship
25%
25%
25%
25%
1
2
3
4
Iron Ore
1. Land
2. Labor
3. Capital
4. Entrepreneurship
25%
25%
25%
25%
1
2
3
4
Assembly line worker
25%
25%
25%
2
3
25%
1. Land
2. Labor
3. Entrepreneurship
4. Capital
1
4
Capitalism is a competitive economic
system in which private citizens own the
factors of production.
50%
50%
1. True
2. False
1
2
The entrepreneur organizes land, capital, and
labor for production in hopes of earning a profit.
50%
50%
1. True
2. False
1
2