Confronting Scarcity: Choices In Production

Read this chapter to learn about the factors of production and the way they are combined in production. Use the production possibilities curve to represent the alternative combinations of goods and services that an economy can produce. Make sure to understand how the curve represents efficient, inefficient, and unattainable levels of production. Pay attention to how economic growth can be represented by shifts in the curve. Also in this chapter, learn about how economic systems compare.

1. Factors of Production


  • Factors of production are the resources the economy has available to produce goods and services.
  • Labor is the human effort that can be applied to the production of goods and services. Labor's contribution to an economy's output of goods and services can be increased either by increasing the quantity of labor or by increasing human capital.
  • Capital is a factor of production that has been produced for use in the production of other goods and services.
  • Natural resources are those things found in nature that can be used for the production of goods and services.
  • Two keys to the utilization of an economy's factors of production are technology and, in the case of a market economic system, the efforts of entrepreneurs.