Factors of Production Flashcards
What are natural resources
Material sources of wealth that occur in a natural state and have economic value
What are the 4 characteristics of natural resources
Scarce
Have a price
Uneven distribution
Can have value added
What does it mean when we say natural resources are scarce
They are scarce in relation to people’s demands and the quality needed in the production process. There are not enough natural resources to satisfy everyone’s wants and needs
What do we mean when we say natural resources have a price
For people to use natural resources they have to pay for them
The remuneration is rent
The rent is determined by the quality and quantity of the resources
What do we mean when we say natural resources are unevenly distributed
Natural resources are not spread equally across all countries
The surplus of resources in one country and a shortage in another leads to international trade
Countries earn an income for exports and have to pay for imports
What does it mean when we say natural resources can have value added to them
Most natural resources are not useful in their natural form
They need to be changed or transformed to make them useful for human consumption
What is the importance of natural resources (2)
To serve as inputs for the production of goods and services
To provide opportunities for international trade
What do we mean when we say natural resources serve as inputs for the production of goods and services
No production is possible with the resources that come from nature
What do we mean when we say natural resources provide opportunities for international trade
When a country has a surplus of a particular natural resource, they can export it
Countries who lack a particular resource can import it
What are the two sectors of natural resources that are economically significant
Agriculture, forestry and fisheries
Mining
How are agriculture, forestry and fisheries economically significant
Important part of SA’s economy
Provide in all of SA’s needs
Offers employment opportunities to between 6 and 10 million people
How is Mining economically significant
SA has a large variety of mineral resources of high quality and substantial quantities
Through mining, thousands are employed and SA earns millions
What is the definition of labour
Labour includes all the work done by people, whether skilled or unskilled and whether physical or mental.
What are the 3 classifications of labour
Skilled
Semi-skilled
Unskilled
What is skilled labour
All people that have passed Grade 12 and have at least 2 years of training at a tertiary institution. Economists call them the professional class
Shortage in South Africa
What is semi-skilled labour
All people who have passed at least Grade 9 and have undergone a few months of in-service training
What is unskilled labour (4)
People who have only finished primary school or have not been to school at all
Contribution to production process is mainly physical
Receive a wage at the end of the day or week - No guarantee of work continuing for longer than the day or week
South Africa has a surplus
What are the 4 characteristics of labour
Income as a goal
Is part of its owner
Not storable
Supply cannot suddenly increase
What do we mean when we say income is a goal of labour
When people work they goal is usually to earn money and secure an income
Need money to buy goods and services to satisfy their needs and wants
What do we mean when we say labour is part of its owner
Labour cannot be separated from its owner
The labour and the person doing the labour is one and the same
What do we mean when we say labour is not storable
Labour cannot be stored or kept
If a worker is unemployed for 3 years, they have lost 3 years of providing labour
What do we mean when we say supply of labour cannot suddenly increase
Labour force is made up of people between the ages of 15 and 64
It often takes a long time for people to enter the labour market due to training times etc
What is the economic significance of labour (5)
Production cannot take place without labour
An economy needs to increase its production in order to grow
It needs a suitable labour force in order to grow
The labour force needs to have the right number of skilled and semi-skilled labour available
Shortage of technically skilled labour is a big problem in South Africa
What is the remuneration of labour
Salaries (Per month)
Wages (Per week)
What are nominal wages
The amounts that the worker receives each week
What are real wages
The amount of goods and services a person can buy with a nominal wage - Buying power of wages
What is the definition of capital
Can be defined as money invested in machines and equipment that will be used in the production process to change the form of materials into useful goods and services
What are the two types of capital
Money
Real
What is money capital
Entrepreneur needs money to buy machinery or tools needed in the production process
The money to buy these capital goods is called money capital
What is real capital
The actual tools and machinery bought with money capital
Can be divided into fixed capital and working capital
What is Fixed Real capital
Land, buildings, vehicles etc. Durable goods that are used more than once in the production process
What is Working Real Capital
Capital that is only used once in the production process such as raw materials. Non-durable capital goods
What are the 5 characteristics of capital
Capital goods are made by people
Machines wear out
Money capital can be changed into any type of capital
Difficult or impossible to change real capital
Capital is expensive
What do we mean when we say capital goods are made by people
It’s a factor of production that is manufactured or made by people
What do we mean when we say that machines wear out
Machines get worn out or break down over time
They lose value over time (Depreciation)
What do we mean when we say money capital can be changed to any type of capital
It can be changed into any type of asset the business wants to buy
Easy to move money from place to place
What do we mean when we say it is difficult or impossible to change real capital
It loses its mobility
It is difficult to move
Sometimes geographically immobile such as a bulding
What do we mean when we say capital is expensive
Buying machines and other capital goods is very expensive
What are the 5 functions of capital
Provides tools to add form utility
Makes mass production possible
Improves the quality of products
Makes standardisation possible
Makes selling on credit possible
What is the economic significance of capital (8)
Economic growth is a direct result of an increase in the capital assets of a country
Savings create capital and a higher investment in capital goods
Savings are thus the starting point for economic growth
To increase the economic growth rate of SA, consumer spending will have to decrease
Resulting savings can be channeled to fixed investments
Will result in more job opportunities and less unemployment
Increase in income will again increase savings, economic growth cycle will continue
What is capital widening
Extra capital is used with an increase quantity of labour
Ratio of capital and output per worker does not change
What is capital deepening
Increase in the quantity of capital good available per worker
Ratio changes
What is the remuneration of capital
Interest
What is entrepreneurship
Process of bringing together the factors of production and using them to produce or sell products or services.
People who start, manage and control businesses - Take risks and make decisions
What are the 4 characteristics of entrepreneurship
Combines the other factors of production
Demonstrates initiative
Takes risks
Makes decisions
What do we mean when we say entrepreneurship combines the other factors of production
To satisfy the needs and wants of consumers - Entrepreneurs need to source enough factors of production at the right time, place and quantities to make the biggest profits
What do we mean when we say an entrepreneur demonstrates initiative
An entrepreneur is responsible for all losses if the business idea fails or if the business goes bankrupt
What do we mean when we say an entrepreneur takes risks
An entrepreneur is responsible for all losses if the business idea fails or if the business goes bankrupt
What do we mean when we say an entrepreneur makes decisions
An entrepreneur makes decisions on what to produce, where to set up the business and who to produce for
Decide on quality and quantity, buy land or lease a premises, buy stock or raw materials and which form of ownership to choose
What is the economic significance of entrepreneurship (6)
Plays an important role in contributing to growth and progress in any country
Formal sector cannot provide employment to all, therefore informal sector plays and important role in providing income and employment
Introduces new goods and services
Increases competition
Reduces inflation
Tax revenue of government increases
What is the remuneration for entrepreneurship
Profit
What are the two types of profit
Gross Profit
Net Profit
What is gross profit
The difference between sales and cost of sales
What is net profit
Gross profit plus all other income minus all expenses the business had to pay to keep it running
What are factors that influence profits
Skills of the entrepreneur
Demand of the product
Production processes and techniques
What is community participation in local planning and activities
Community forums, together with local government, can play an important role in development of entrepreneurs
Can reduce unemployment, alleviate poverty and turn around a low regional growth rate
Example - Small and Medium Business Development Corporation (SMBDC)
Example - Local Economic Development (LED)
What are Economically Marginalised Groups
Groups that are worse off relative to the rest of the population in terms of income and non-income, which includes basic services
Earn less income than the minimum income required to satisfy basic needs
Largely unemployed, lack basic skills and cannot be trained because they cannot read or write
What is marginalisation an outcome of
Apartheid excluding people of colour
Women being excluded from the business world
What laws have been put in place to assist marginalised groups
Black Economic Empowerment and the Employment Equity Act
Affirmative Action
Skills development with SETAs (Sector Education and Training Authorities)
