Chapter 2- Factors of Production

Question 1

Economic good

Answer 1

Economic good: A product that requires resources to produce and therefore has an opportunity cost (Eg: education)

Question 2

Free goods

Answer 2

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)

Question 3

Factors of Production (Economic Resources)

Answer 3

Factors of Production (Economic Resources): The economic resources of land, labor, capital, and enterprise

Question 4

Land

Answer 4

Land: gifts of nature available for production

Payment for land is rent

Question 5

Labor

Answer 5

Labor: human effort(mental and physical) used in producing goods and services

Payment for labor is wages

Question 6

Capital/ Capital Goods

Answer 6

Capital/ Capital Goods: human made goods used in production
Eg: offices, machinery, factories

Payment for capital is interest

Question 7

Enterprise and Entrepreneurs

Answer 7

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

Question 8

Consumer Goods

Answer 8

Consumer Goods: Goods purchased by households for their own satisfaction

Question 9

Occupationally mobile

Answer 9

Occupationally mobile: Capable of changing use

Question 10

Geographically immobile

Answer 10

Geographically immobile: Incapable of moving from one location to another location

Question 11

Geographically mobile

Answer 11

Geographically mobile: Capable of moving from one location to another location

Question 12

Mobility of Labor

Answer 12

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)

Question 13

Mobility of Capital

Answer 13

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

Question 14

Mobility of Enterprise(Definition)

Answer 14

Mobility of Enterprise: the ability to change where enterprise is used or in which occupation

Question 15

Mobility of Enterprise

Answer 15

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

Question 16

Labor Force

Answer 16

Labor Force: People in work and those actively seeking work

Question 17

Productivity

Answer 17

Productivity: The output per factor of production in an hour

Question 18

Labor Productivity

Answer 18

Labor Productivity: Output per worker hour

Question 19

Output

Answer 19

Output: Goods and services produced by the factors of production

Question 20

Investment

Answer 20

Investment: Spending on capital goods

Question 21

Gross investment

Answer 21

Gross investment: Total spending on capital goods

Question 22

Depreciation (Capital Consumption)

Answer 22

Depreciation (Capital Consumption): The value of capital goods that have worn out or have become obsolete

Question 23

Net investment and Negative Net Investment

Answer 23

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

Question 24

Quality and Quantity of Land

Answer 24

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

Question 25

Quality and Quantity of labor

Answer 25

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

Question 26

Quality and Quantity of Capital

Answer 26

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

Question 27

Quality and Quantity of Enterprise

Answer 27

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.