The Economic Problem:
Scarcity and Choice
OUTLINE OF TEXT MATERIAL
This chapter explores the questions of what, how, and for whom to produce. “Human wants are
unlimited, but resources are not.” This creates scarcity. Scarcity, in turn, forces us to make
is used in its broadest sense, including everything from natural resources
(timber, minerals, energy), capital (buildings, machines), labor (human capital), and
entrepreneurship. Resources are also called
factors of production
, or simply
is what is produced. Economists usually include land, labor, and capital
as factors of production.
The chapter then proceeds to some key definitions:
Factors of production
) are the inputs into the production process. The
text uses factors and resources interchangeably.
is the transformation of resources into goods and services.
(inputs) are used directly or indirectly to satisfy human wants.
includes buildings, machines, and other things that are produced in order
to produce other goods and services.
are those who transform resources into outputs (final goods and
are usable products.
Scarcity, Choice, and Opportunity Cost
Scarcity and Choice in a One-Person Economy
Bill must make choices about how to allocate resources, what to produce, and
how to produce it. Bill’s situation is “constrained choice.” His main constraint is
available time. Bill must decide what goods and services he wants to produce,