Chapter 3 Review Flashcards
Why is information sometimes called the fifth factor of production? What happens when the four factors of production are not combined intelligently?
Information in free markets is vital for the continuance of its healthy economy. It gives a right understanding of how the economy works and knowledge people have already gained through their businesses. Through information of economic systems, a person does not have to learn through bad experience or “reinvent the wheel” by their own experimentation. Information through technology can lead to the influence of business choices: like the effect of the devastation of a crop that a certain business needs. When the four factors are not combined intelligently, the chain has been broken in a delicately balanced economy. Since these factors are economic laws, ignoring these laws would be devastating to any economy.
Explain how the ways in which the four factors of production are combined influence the prosperity of economies.
When these factors are ignored, the economy will suffer tremendously. A nation obviously needs to combine these well to be prosperous. In the traditional economy the labor is based upon custom, heredity, or caste, which disparages hope of betterment for the individual. Natural resources will be controlled by one family and will not be attainable by anyone else. Capital will be owned by those entitled to it, and entrepreneurship will be discouraged in general. While the rich stay rich, the poor will usually stay poor and will have no incentive for harder work. The command economy controls all the natural resources and capital, discouraging creative entrepreneurs and hard labor, because the individual will gain little by either. Each of these are essential and when they are strayed from, the economies suffer under poverty. When these are used well however, granting much freedom to the individual, an economy prospers because wise management of the laws that God put on economics will inevitably lead to prosperity.
Does the possession of natural resources guarantee wealth? Explain.
No. This is seen in the many countries blessed with many valuable resources with people in desperate poverty. When one has no way to harvest these resources (due to lack of capital, governmental control, caste, etc.,) these resources do nothing in themselves to gain prosperity for the individual.
Is labor purely physical? Give reasons for your answer.
No. Mental work is also needed for a healthy economy. Inventors, chemists, physicists, and brain-surgeons (who have to think during their work) are all necessary components in a smoothly working economy, helping in the production of products with creativity and science.
Should a skilled laborer receive more reward than an unskilled laborer? Why or why not?
Yes, since the quality of the good produced will be of greater rarity, in the sense that it needed intelligent work to produce, the worker should receive wages equal to his work.
In what sense can stocks, bonds, savings accounts, etc., be counted as capital?
Stocks or bonds… money in banks, or life insurance… can be called capital…, for such investments usually mean that the investors’ savings are used by companies that produce goods.
What is the difference of the capitalism of the United States and the capitalism of China?
The US has private capitalism: a system in which much of the nation’s capital is controlled by the private individual and business. China has state capitalism: a system in which much of the nation’s capital is controlled by a powerful, centralized apparatus called the collectivist state.
Why do entrepreneurs deserve the large economic rewards they sometimes receive?
Entrepreneurs put much hard work of planning, intelligent thought, and creativity into their endeavors. Without the ever-planning entrepreneur, the economy would languish. Thus, the entrepreneurs deserves the large economic gain they receive.
Why is private capitalism more efficient than the other economic systems at supplying the goods and services that people want and need?
The free market allows for inspiration of the work ethic, creativity, and entrepreneurship. It will allow “the hand” to work “invisibly” in the market, bringing the necessary people together to create an item that would be impossible to create in mass quantities without the intricate balance of the free market. Without the free market, there is not enough information to make sound decisions, and the result is often a shortage of certain goods and services. But as people are allowed to come together, share their knowledge and resources, and make informed choices, they form an enterprising economy that can work to the benefit of all. In other economies the smooth working that can only be created by free enterprise is stifled, and the nations suffer.
How have the abundant resources of the United States been influential in shaping the country’s economy? Use examples of all four factors of production in your answer.
The United States has many abundant resources. This factor is essential to provide for most goods and services. So much resources provides many jobs for the people. One can also easily see that capital to harvest these resources was necessary and an entrepreneur to combine the factors of production intelligently to boost the economy. Resources are essential for most enterprises as they help in the production of goods and services.
Why is labor of free people generally more productive than that of those who are not free?
Free people know that they are working to their own advantage, not merely for the gain of some individual or organization. Hence, free people will ordinarily work more energetically than forced slaves. They will also work more intelligently, wanting to rise higher in business– giving rise to more creativity to the company and more reward (money) to themselves.
Why does the invention and implementation of new technologies lag in command economies?
When the government controls all factors of production, shunning the entrepreneur’s freedom to create, an economy will naturally turn inefficient and even “stale”– with little improvement and no creativity. The economy will not implement technologies because the government when in control will discourage new growth in the economy.
In a free market society, households have original economic control of all the factors of production. Can you explain why this is true?
This is true because in a free society, the individual has private property rights. The individuals (in the household) of the whole nation make up all the owners of natural resources and capital. They also supply all labor as workers in industry whether physical or mental. Also, every entrepreneur is from a household too. Therefore, a household has original economic control over all of the factors of production.
What are the four factors of production? What could almost be labeled as a fifth factor?
Natural resources, labor, capital, and entrepreneurship. Information
Three main types of economies
Traditional, command, and free enterprise
