Factors of Production

land

all natural resources

• real estate, metals minerals

• above and below ground

• fixed

labor

physical and mental exertion of people producing G/S

• not slavery or coercive

• must be able to determine price of sale of labor

capital

all manufactured goods used to produce G/S

• not money

• machinery

• factories

• storage

• transport

investment

purchase of capital goods

human capital

specialized skills/education

entrepreneurial ability

person who assumes risks and unknowns of a business

• combine land, labor, capital

capital goods

goods used in production of future goods

• pizza oven at restaurant

consumer goods

goods used by consumers can be used up over time

• food

  • home ovenb

budget constraint

decisions made to which combo of items are being purchased

PPF

decisions made to which combo of items are being produced

law of increasing opportunity costs

as production of particular good increases, opportunity cost of producing an additoinal unit rises

• resources are not completely adaptable

• land and machinery not interchangeable