Chapter 2 Choice Opp Cost

Basic Principles in the Use of Resources

a Resources

b Macroeconomics vs. Microeconomics

c Rational Choice: Cost vs. Benefits

d Production Possibilities: Production, Allocation and Opportunity Costs

e Growth

In this chapter, we will look at some fundamental terminology and concepts that ecomists use in viewing economic choices. I will describe the various categories of resources and introduce the ideas of efficiency and growth.

2.a Resources

Resources are often called the factors of production.. Economists generally categorize resources into Labor, Land, Capital and Entrepreneurship. I have included Technology as well, due to theimportant role it plays that is indistinguishable from other factors of production. The diagram below describes these categories.

Diagram 1 Factors of Production

| | Human resources | Natural resources |

|Natural |Labor |Entrepreneurship |Land: land, water, plant and|

| |Unskilled Labor effort |Initiative, risk taking |animal life |

| |and natural abilities | | |

|Produced |Human capital: |, |Farm land, livestock |

| |individuals’ skills, | |fisheries |

| |knowledge and experience | | |

| |Capital: buildings, factories,machines, tools |

| |Technology: inventions, methodologies, scientific knowledge, intellectual property |

Natural vs. Produced Resources

Imagine yourself shipwrecked on a desert island. You do a survey to assess what resources you have:

o there is a spring with fresh water deep down in a...