01/09/14 Ch. 2 Factors of Production, PPG

• Factors of Production
1. Land- natural resources
2. Labor- work force
3. Capital
• Human Capital- knowledge and skills a worker gains through experience and education.
• Physical Capital- human made objects used to create other goals and services. Ex: Machinery. 

          4. Entrepreneurship- inventive & risk taker.

• Opportunity Cost- the most desirable alternative given up by making a decision.
• PPG- Production Possibilities Graph
• PPF- Production Possibilities Frontier
• PPC- Production Possibilities Curve
• Why should we use PPG?
• #1. Shows all the alternative ways to use resources.
• Productive efficiency- producing resources at the lowest cost. (allocating resources efficiency) 
• Productive efficiency can be on any point of the curve.
• Allocative efficiency- combinations most desired by society. People want to know where to put more money on the curve. (consumer v. capital goods)
• 100% employed, 4-5% unemployment
• 100% employment = 100% productive
• 80-90% factory capacity