PRODUCTION, ECONOMIC RESOURCES AND RESOURCE ALLOCATION Flashcards
production
Production involves the use of resources to produce goods and services for consumption.
productivity
Productivity is the measure of the efficiency of output that can be obtained from using productive resources.
define “factors of production”
economic resources required to produce goods: (human and non-
human).
list the factors of production
land, labour, capital, enterprise
rewards of factors of production
land: rent
labour: wages and salaries
capital: interest
enterprise: profit
land
land refers to a range of natural resources.
Example: oil, water, farm land
characteristics of land
- it is not man-made
2. the quantity of land is not fixed
importance of land
all goods and services that society used involves some natural resources
define productivity of land
the productivity of land is a measure of output that can be produced by a given unit of land.
how is productivity of land measured?
- in terms of physical product that is how many units of output the land will produce
- in terms of revenue product that is the value of the physical product when it is sold
how can productivity of land be produced
- by altering its physical characteristics
2. by combining the land with more advanced forms of technology
labour
Labour refers to the physical and mental efforts made by workers in the production process
types of labour
- skilled labour
- unskilled labour
- physical labour
- mental labour
productivity of labour
the output per worker per unit of time
productivity of labour depends on….
- the quality of the other factors with which labour is working
- the amount of training and skills the labour has
ways to increase the productivity of labour
- increasing the wages of workers: workers are motivated to raise their productivity
- improving working conditions
- offering promotion opportunities: motivate workers to perform better at their jobs
- providing sufficient education and proper training opportunities to workers: training opportunities for workers to enhance their skills which would increase productivity
supply of labour
labour is supplies by the number of people in a country who are available for employment (labour
force)
division of labour
division of one task into smaller tasks
specialization
focusing on one task and becoming an expert at it
advantages of division of labour
- increase in output
- use of machinery: machines can be designed to help workers perform specific tasks
- increase in productivity: workers performing repetitive task soon become experts becoming more efficient
- employment opportunities: more jobs are created each requiring different skills
disadvantages of division of labour
- doing repetitive work might be boring and monotonous
- stifles creativity
- causes immobility of labour: workers can be easily immobilized if they are removed form their job due to technological advances. Finding another job may be difficult as their skills might not relevant for other jobs
capital
capital includes all items that are into producing other goods and services
characteristics of capital
- tend to be durable
2. tend to be very expensive and are usually funded by loans.
investment
the purchase of capital goods by a business
types of capital
- fixed capital: items that are durable and are used over a fairly long period of time
- working capital: items that must be replaced on a day to day basis after use
accumulation of capital
capital is accumulated by investment. as more and more capital is accumulated capital formation occurs. this refers to an increase in the amount of capital available for production. capital formation will eventually increase the productive capacity of the economy. if the business chooses to avoid interest payment charged by banks on investment they may opt to fund capital accumulation using their savings
importance as a substitute for
labour
some industries are labour intensive while others are capital intensive. Automatic machinery (capital) has replaced many workers. while this results in increased production. It is at the cost of many people loosing their jobs
entrepreneurial talent
brings all other factors of production. An entrepreneur decides how the other factors of production are going to be used to produce goods and services.
functions of entrepreneur
- takes risks and is responsible for all decisions that need to be taken
primary sector
industries involved in exploring for and mining of natural resources.
Example: fishing, farming, mining
secondary sector
industries involved in producing a finished product from primary products.
Example: turning cotton into clothes, turning cocoa beans into chocolate.
tertiary sector
industries that provide a service and not a physical product
Example: hairdressing, teaching, plumbing
short run
the period of time when a firm can increase some of its factors of production but not all. There is at least one fixed factor of production while others a variable
long run
the period of time when a firm can increase all of its factors of production. All factors of production are variable
cost of production
this is the sum or total of all the factors used to produce a goods / service
fixed cost
the cost that does not change or vary as output varies
Example: rent
variable cost
cost that changes as output changes
Example: ingredients/raw materials
total cost
the sum of all costs incurred by a firm in producing a certain level of output.
average cost
the per unit cost of production obtained by dividing the total cost by the total output
average cost calculation
AC=TC/Q
variable cost calculation
?
marginal cost calculation
MC=∆C/∆Q
fixed cost
?
total cost
?
free goods
one that is readily available to customers that they do not pay for nor make a sacrifice to use
economic goods
one that must be paid for and the consumer will have to sacrifice another good in order to consume it
consumer goods
these goods are purchased for direct use from the consumer. she herself will be using it
producer goods
(aka capital goods) these goods are used to produce other goods
Example wood
resource allocation
this refers to how economies allocate scarce resources for which they can be used.
economic questions
- what to produce
- how to produce
- for whom to produce
economic systems
- traditional / subsistence
- planned / command
- free market
- mixed economy
traditional economy
an economy based on traditions and customs where nearly the whole population is engaged is agriculture, producing just enough food for their own needs
command economy
economic resources owned, planned and controlled by the state
characteristics of command economy
t
Types of business organizations in a free market.
1) sole proprietorship
2) partnership
3) limited company
4) co-operative
5) public corporation
sole trader
1) sole proprietorship - The owner manages and controls the organization for his profit. He bears all risks makes all decisions and must consider the
economic questions
partnership
2) partnership - More than one person has ownership and participation in the business due to the need of help or more capital.
limited liability
3) limited company - Raises larger sums of money for large - scale production. Capital id obtained by the sale of shares to investors
co-operative
4) co-operative - an association of people who have come together for the purpose of buying goods at lower prices, selling goods they produce, rendering services to its members.
public corporation
5) public corporation - state owned organizations that are free to run their own affairs based on guidance from the government. (water, gas, electricity, transportation)
economies of scale
the cost saving a firm benefits from expanding its scale of production in the long run
diseconomies of scale
the disadvantages or cost increases that accrue to a firm as it grows in size and scale.
types of economies of scale
- technical economies of scale: the ability to make use if new technology which is not available to smaller businesses
- marketing economies of scale:
- managerial economies of scale:
- financial economies of scale:
types of economies of scale
- technical economies of scale: the ability to make use if new technology which is not available to smaller businesses
- marketing economies of scale:
- managerial economies of scale:
- financial economies of scale:
diseconomies of scale
the disadvantages or cost increases that accrue to a firm as it grows in size and scale.
economies of scale
the advantages or cost savings a firm benefits from expanding its scale of production in the long run
types of economies of scale
- technical economies of scale
- marketing economies of scale
- managerial economies of scale
- financial economies of scale
technical economies of scale
the ability to make use if new technology which is not available to smaller businesses
marketing economies of scale
occur when larger firms are able to lower the unit cost of advertising and promotion perhaps through access to more effective marketing media.
diseconomies of scale
the disadvantages or cost increases that accrue to a firm as it grows in size and scale.
marketing economies of scale
occur when larger firms are able to lower the unit cost of advertising and promotion perhaps through access to more effective marketing media
managerial economies of scale
occur when large firms can afford specialists. A large scale firm may be able to employ managers and supervisors to manage various department
financial economies of scale
the company has cheaper access to capital. They can acquire funds on several ways such as through the sale of shares as well as they obtain loans at cheaper interest rates from bank as opposed to smaller firms
