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S4 Economics > Ch.5 Factors of Production > Flashcards

Ch.5 Factors of Production Flashcards

1
Q

What are the factors of production?

A

Land, capital, labour and entrepreneurship

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2
Q

What is the definition of land?

A

Land refers to all natural resources which have not gone through any man-made processes. The return land is rent.

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3
Q

What are the characteristics of land?

A
  1. No cost of production is involved in land’s existence. No resources have to be forgone in their formation, it is the gift of nature.
  2. Supply of land could not be increased by human efforts.
  3. Land becomes capital when moved by human efforts.
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4
Q

What is the definition of capital?

A

Capital/ Producer goods is the man-made resources that are used in production. The return to capital is interest.

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5
Q

What are the characteristics of capital?

A
  1. Use of capital can increase the average labour productivity of other factors of production.
  2. Increase in capital forgoes the present consumption for future consumption.
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6
Q

What are the differences between land and capital?

A
  1. Definition: Natural resources used in production vs Man made resources used in production.
  2. Feature: Does not involve human effort vs involve human effort in production.
  3. Production cost: No vs Yes.
  4. Amount available: Cannot be increased artificially vs can be increased artificially.
  5. Factor income: Rent vs Interest.
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7
Q

What does change in stock of capital goods mean?

A

Change in stock of capital goods: Capital formation - Depreciation.

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8
Q

What is capital formation?

A

Capital formation refers to the production or purchase of capital goods. It is also called investment.

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9
Q

What are the 2 motives in capital formation?

A
  1. For replacement of depreciated capital -> To maintain production capacity.
  2. For increasing production capacity -> To expand production capacity.
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10
Q

What is depreciation?

A

Depreciation refers to the reduction in the stock of capital goods or in the value of goods.

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11
Q

What are the 2 major causes in depreciation or capital consumption?

A
  1. Caused by wear and tear.
  2. Capital obsolescence (being out-of-date)
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12
Q

What is capital accumulation?

A

Capital accumulation refers to a net increase in the stock of capital goods. It is the main source of economic growth. It involves giving up present consumption for future consumption.

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13
Q

What are the consequences when the interest rate decreases?

A

The cost of financing decreases. Investment is encouraged and it is favourable to capital accumulation.

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14
Q

What are the consequences when the interest rate increases?

A

The cost of financing increases. Investment is discouraged and it is unfavourable to capital accumulation.

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15
Q

What is labour?

A

Labour is the human effort, both mental and physical, used in production.

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16
Q

What is labour supply?

A

Labour supply is measured of the total number of working hours that workers provide per time period.

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17
Q

What is the formula of labour supply?

A

Labour supply = Number of workers employed x Number of working hours per worker.

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18
Q

What are the factors affecting labour supply?

A
  1. Size of population.
  2. Population structure.
  3. Number of working hours
  4. Monetary rewards and future prospects
  5. government policies.
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19
Q

Explain on size of population affecting labour supply.

A

In general, a larger population results in large labour supply because more working hours are likely to be provided.

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20
Q

Explain on population structure affecting labour supply.

A

The larger the share of working population in total population, the larger the labour supply, because more working hours are likely to be provided.

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21
Q

Explain on the number of working hours affecting labour supply.

A

Events that affect the number of working hours also affect labour supply.

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22
Q

Explain on monetary rewards and future prospects affecting labour supply.

A

Higher monetary rewards and better future prospects may attract more workers to work more or move to a region. This will lead to increase in labour supply.

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23
Q

Explain on government policies affecting labour supply.

A

Regulations and policies implemented by the government can affect the labour supply, like raising the retirement age or lowering the legal minimum working age will increase labour supply.

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24
Q

What is average labour productivity?

A

Average labour productivity is the amount of output per man-hour.

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25
Q

What are the factors affecting labour productivity?

A
  1. Education and training.
  2. Working conditions.
  3. Rewards and benefits.
  4. Technology level of producer goods.
  5. Methods of organising and managing labour.
  6. Health of workers.
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26
Q

Explain on education and training.

A

When workers are equipped with more knowledge, experience and skills, their average labour productivity increases.

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27
Q

Explain on working conditions.

A

When workers work in good working conditions, such as a safe and tidy work environment, they tend to be more productive, increasing average labour productivity.

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28
Q

Explain on rewards and benefits.

A

Benefits such as good promotion prospects, attractive bonuses and medical benefits can encourage workers to work harder. They can help increase average labour productivity.

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29
Q

Explain on technology level of producer goods.

A

Workers can produce more output when they use more advanced capital goods and the average labour productivity would increase.

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30
Q

Explain on methods of organising and managing labour.

A

Better organisation of labour can increase average labour productivity, examples include practising division of labour and choosing the best person to do the job.

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31
Q

Explain on health of workers.

A

Healthier workers can perform and complete their tasks more efficiently and quickly. They thus tend to have higher average labour productivity.

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32
Q

What is occupational mobility?

A

Occupational mobility refers to the ability and willingness of a factor of production to change from one occupation to another.

33
Q

What are the factors that affect occupational mobility?

A
  1. Retraining programs.
  2. Market obstacles.
  3. Remuneration and working condition.
  4. Specialized skill required.
  5. Labour market information.
  6. Age
34
Q

Explain on retraining programs.

A

Workers can acquire skills require by new jobs leads to increasing in occupational mobility.

35
Q

Explain on remuneration and working conditions.

A

If these are worsen in an occupation, this will encourage workers to change their jobs as the opportunity cost of changing jobs is decreasing leads to increasing occupational mobility.

36
Q

Explain on market obstacles.

A

The more restriction set up by union and professional association, it decreases occupational mobility. If the Government request them to relax the restrictions, it will increase the occupational mobility.

37
Q

Explain on specialized skill required.

A

Cost of changing occupation = the highest income forgone in another job. The more specialized skill required, the better the reward, cost of changing occupation is high which decreases occupational mobility.

38
Q

Explain on labour market information.

A

Increasing the labour availability of information about job vacanies can help workers find new jobs. This help increase the occupational mobility of labour.

39
Q

Explain on age.

A

The younger the employee, the higher the occupational mobility.

40
Q

What is geographical mobility?

A

Geographical mobility refers to the ability and willingness of a factor of production to move from one place to another.

41
Q

What are the factors of geographical mobility?

A
  1. Transportation costs.
  2. Political factors.
  3. Social factors.
  4. Immigration law.
  5. Market information.
42
Q

Explain on transportation.

A

When transportation is convenient, cost of transportation is low, labour can easily go to other places to work, increasing the geographical mobility.

43
Q

Explain on political factors.

A

Due to the political instability, many people may go to other places to work leads to increasing geographical mobility.

44
Q

Explain on social factors.

A

Due to poor economic condition, or social instability, many people may go to other places to work, leading to high geographical mobility.

45
Q

Explain on immigration law.

A

Strict immigration lowers the geographical mobility.

46
Q

Explain on labour market information.

A

With more labour market information available on the Internet, people can search and apply for jobs in other countries more easily leading to increasing geographical mobility of labour.

47
Q

What are the wage payment methods?

A
  1. Piece rate.
  2. Time rate.
  3. Basic salary plus commission.
  4. Profit-sharing scheme.
  5. Tips
48
Q

What is piece rate?

A

An employee is paid according to his output or contribution.

49
Q

When is piece rate used?

A

Most suitable for jobs in which output can be measured easily and product quality can be easily monitored.

50
Q

What are the possible advantages of piece rate to the employer?

A
  1. The labour productivity will be higher become workers’ income directly depend on output.
  2. Workers have a stronger incentive to work hard.
  3. The cost of supervising the workers from shirking is lower.
  4. Production costs are easier to control because wages are paid according to the output level.
51
Q

What are the possible advantages of piece rate to the employee?

A

Employees can earn more by working harder.

52
Q

What are the possible disadvantages of piece rate to the employer?

A

The cost of monitoring output quality is higher as workers may rush for more output at the expense of quality.
The cost of calculating wages is higher as the output of each worker is different.

53
Q

What are the possible disadvantages of piece rate to the employee?

A

Employees’ incomes are less stable because wages are paid according to the output level.

54
Q

What is time rate?

A

An employee wage is paid according to his working hours.

55
Q

When is time rate used?

A

Most suitable for jobs in which workers’ contribution is too costly to measure and for jobs require high product quality.

56
Q

What are the possible advantages of time rate to the employer?

A
  1. Since incomes of worker are more stable, it is easier to maintain a static team.
  2. The cost of measuring workers’ output is lower as wages are paid on a time basis.
  3. The cost of monitoring output quality is lower because workers do not need to rush for output.
57
Q

What are the possible advantages of time rate to the employee?

A

Employees can enjoy a more stable income.

58
Q

What are the possible disadvantages of time rate to the employer?

A
  1. Since workers’ incomes do not directly depend on output, they tend to be less hard-working and have lower incentive to work hard.
  2. The cost of supervising workers’ performance is higher because of the problem of shirking.
59
Q

What are the possible disadvantages of time rate to the employee?

A

Employee cannot earn more even if they work harder.

60
Q

What is basic salary plus commission?

A

Employees are given a basic salary. In addition, commission is awarded as a percentage of the sales volume.

61
Q

When is basic salary plus commission used?

A

When the company wants to increase employees’ working incentive, and on the other hand, the basic salary allows its employees to have a more stable income.

62
Q

What are the possible advantages of basic salary plus commission to the employer?

A
  1. Workers have a stronger incentive to work hard.
  2. The cost of supervision is lower because workers tend to work harder in order to earn higher commissions.
63
Q

What are the possible advantages of basic salary plus commission to the employee?

A
  1. The basic salary safeguards the basic livelihoods of employees.
  2. Employees can earn more by working harder.
64
Q

What are the possible disadvantages of basic salary plus commission to the employer?

A

The cost of assessing workers’ performance and measuring workers’ output is higher.

65
Q

What are the possible disadvantages of basic salary plus commission to the employee?

A

Employees’ income are less stable because it depends on employees’ performance.

66
Q

What is profit sharing scheme?

A

A portion or percentage of profit is distributed to workers as a wage payment.

67
Q

When is profit sharing scheme used?

A

The company wants to increase employees’ working incentive. It will be used with other payment methods.

68
Q

What are the possible advantages of profit sharing scheme to the employer?

A
  1. Workers have stronger incentive to work hard.
  2. The cost of supervision is lower because workers tend to work harder.
  3. Part of the business risk is shared by workers.
69
Q

What are the possible advantages of profit sharing scheme to the employee?

A

Employee can earn more by performing better.

70
Q

What are the possible disadvantages of profit sharing scheme to the employer?

A

The cost of calculating wages is higher as it involves the calculation of profits.

71
Q

What are the possible disadvantages of profit sharing scheme to the employee?

A
  1. Employees’ incomes are less stable.
  2. If business suffers a loss, employees may not get paid. They have to share part of the business risk.
72
Q

What are tips?

A

A gift of money paid by customers to reward workers.

73
Q

When is tips used?

A

When workers provide direct service to customers.

74
Q

What are the possible advantages of tips to the employer?

A

Workers have a stronger incentive to work hard leading to lower cost of supervision.

75
Q

What are the possible advantages of tips to the employee?

A

Good performance workers can have higher income.

76
Q

What are the possible disadvantages of tips to the employer?

A

The cost of calculating wages may be high.

77
Q

What are the possible disadvantages of tips to the employee?

A

Income becomes unstable.

78
Q

What is entrepreneurship?

A

Entrepreneurship refers to human efforts which organize all resources, making business decisions and bear business risks.

79
Q

What is the return of entrepreneurship?

A

Profit. Profit= Total revenue-Total cost

S4 Economics (6 decks)

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