Factors of Production and the Production Possibilities Curve

Read Sections 2.1 and 2.2. Take a moment to read through the stated learning outcomes for this chapter, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Also, attempt the "Try It" problems for each section before checking your answers.

The first section of the chapter will introduce you to the four factors of production that are present in the economy: labor, capital, natural resources, and entrepreneurship. Using any two factors of production, you can then learn to construct the production possibility frontier (PPF) in a two plane model. Note the economic implications of the downward slope and the bowed-out shape of the PPF curve. Also, note the meaning of producing on the curve versus inside the curve. Lastly, think about what it means to move along the curve

2.1 Factors of Production


  1. An unemployed factory worker could be put to work; he or she counts as labor.
  2. A college professor is labor.
  3. The library building on your campus is part of capital.
  4. Yellowstone National Park. Those areas of the park left in their natural state are a natural resource. Facilities such as visitors' centers, roads, and campgrounds are capital.
  5. An untapped deposit of natural gas is a natural resource. Once extracted and put in a storage tank, natural gas is capital.
  6. The White House is capital.
  7. The local power plant is capital.