Chapter 2- Factors of Production Flashcards
Economic good
Economic good: A product that requires resources to produce and therefore has an opportunity cost (Eg: education)
Free goods
Free goods: A product that doesn’t require resources to produce, and hence doesn’t have an opportunity cost (Eg: sunshine, water in a river)
Factors of Production (Economic Resources)
Factors of Production (Economic Resources): The economic resources of land, labor, capital, and enterprise
Land
Land: gifts of nature available for production
Payment for land is rent
Labor
Labor: human effort(mental and physical) used in producing goods and services
Payment for labor is wages
Capital/ Capital Goods
Capital/ Capital Goods: human made goods used in production
Eg: offices, machinery, factories
Payment for capital is interest
Enterprise and Entrepreneurs
Enterprise is risk bearing and key decision making in a business
Entrepreneur is a person who bears the risks and makes the key decisions in a business
Entrepreneures are people who organise the other factors of production and bear the risk if the business fails. They decide what to produce by taking into account consumer demand and the process of production of a given product or service. In most firms and companies the 2 tasks of an entrepreneur are distributed. The risk of business failure is beared by the shareholders and investors of the company and the production decisions are made by the managing director
Payment for enterprise is profits
Consumer Goods
Consumer Goods: Goods purchased by households for their own satisfaction
Occupationally mobile
Occupationally mobile: Capable of changing use
Geographically immobile
Geographically immobile: Incapable of moving from one location to another location
Geographically mobile
Geographically mobile: Capable of moving from one location to another location
Mobility of Labor
Mobility of Labor is the ability of labor to change where it works or in which occupation
It depends on various factors which are:
Difference in the avaliability and price of housing in different areas and countries
Family ties
Differences in the educational system in different areas and countries
Lack of information
Restrictions of the movement of workers (scarcity of work permits and work visa, etc)
Mobility of Capital
Mobility of Capital is the ability to change where capital is used or in which occupation
Mobility of capital changes from good to good. For example a photocopier used in a bank can be moved to a different part of the country relatively easily. On the other hand, a pier, is fixed in place and cannot be moved
Mobility of Enterprise(Definition)
Mobility of Enterprise: the ability to change where enterprise is used or in which occupation
Mobility of Enterprise
enterprise moves with the people who carry out its functions
the mobility of enterprise therefore depends on the mobility of entrepreneurs
it is the most mobile factor of production as the skills required to be an entrepreneur can be applied to every industry
It is also geographically mobile as someone who was able to start a successful business in one location can likely do the same in another location
Labor Force
Labor Force: People in work and those actively seeking work
Productivity
Productivity: The output per factor of production in an hour
Labor Productivity
Labor Productivity: Output per worker hour
Output
Output: Goods and services produced by the factors of production
Investment
Investment: Spending on capital goods
Gross investment
Gross investment: Total spending on capital goods
Depreciation (Capital Consumption)
Depreciation (Capital Consumption): The value of capital goods that have worn out or have become obsolete
Net investment and Negative Net Investment
Net investment: Gross investment minus depreciation
Negative net investment: a reduction in the number of capital goods caused by some obsolete and worn-out capital goods not being replaced
Quality and Quantity of Land
Quantity of land:
The amount of physical land avaliable cannot change much with time, but factors such as soil erosion and and land reclaimation can decrease and increase the supply of land respectively. Natural resources can be renewable and non- renewable. Resources such as sunlight are naturally renewed by nature while others such as minerals take a much longer time. Overuse of non renewable ersourecs could result in the diminishing of the quantity of land
Quality of Land:
Quality of land can be increased using many methods. Eg: increasing ertility of agricultural land by using fertilizers. Purity of rivers and health of fish in said rivers can be improved by reducing the pollution caused by firms
Quality and Quantity of labor
Quantity of Labor:
It is affected by the: Size of the population, age structure of the population, retirement age, average school leaving age and attituce to working women
Number of Working hours are affected by: Length of mean working day, if workers are full time or part time, duration of overtime, length of holidays taken by workers, amount of time lost due to sickness and illness
Quality of Labor:
This can be improved by better education , better training, more experience and better healthcare. This will increase the skill of the laborours and create a more productive work force
Quality and Quantity of Capital
Quantity of Capital:
This is influenced by investment and usually increases with time. Every year there is depreciation caused by obselete capital goods. Initially the gross investment might be less than the depreciation which causes a negative net investment. But as time passes the gross investment will increase and surpass the depreciation, thereby increasing the quantity of capital goods
Quality of Capital:
This can be increased by advances in technology as they aid in capital goods producing a higher and better quality output
Quality and Quantity of Enterprise
Quantity of Enterprise:
This can increase if the number of entrepreneurs increase. A better education system including degrees, business studies and economics may aid in producing more entrepreneurs. Decrease in government regulkations and decrease in corporate tax may encourage entrepreneurs to set up their own business.
Quality of Enterprise:
This can be increased if there is better education, training, better healthcare for entrepreneurs and increased experience.
