![]() Capital: This factor of production includes the resources used in the production process, such as buildings, machinery, tools, vehicles, and inventory.Labor: This is the most important factor of production, and can include manual labor, such as a bricklayer laying brick, or white-collar labor, such as an accountant preparing financial statements. ![]() This is because fixed factors of production tend to have high sunk costs that cannot be recovered, while variable factors of production can be adjusted to respond to changes in demand. In a business setting, management will often try to minimize the costs of fixed factors of production while maximizing the use of variable factors of production. These resources are considered variable because they can be easily changed in the short-term to respond to changes in demand. A company can quickly adjust the number of workers it employs or the amount of raw materials it uses to produce its goods or services. These include resources such as labor and raw materials. Variable factors of production, on the other hand, refer to resources that can be easily increased or decreased in the short term. These resources are considered to be fixed because they are difficult to change in the short-term and require a significant amount of time and money to alter. For example, a company may have a factory or office building that it cannot quickly expand or reduce in size. ![]() ![]() These include resources such as land, buildings, and equipment. Variable factor of production - quantity can be changed even in the short term.įixed factors of production refer to resources that cannot be easily increased or decreased in the short term.Fixed factor of production - may not be changed in short term.Technology that uses the most capital is called a capital intensive, while technology demanding large number of humans work is labor-intensive.Īlong with the changes in prices of the factors of production the company uses substitution effect to selects the relevant quantities of the factors of production to minimize overall costs.įactors of production can also be divided into fixed and variable. On the basis of the available factors of production and prices, the company can determine best production technology at given moment. ground - good of natural origin held by the owner, for example: land, minerals, goods of natural originįactors of production impact on management.capital - good previously produced, resources, machinery, buildings, infrastructure, knowledge and experience.labor - human effort that is put in the production of goods or services.In the classic economic approach we can distinguish the basic factors of production, such as: Production factors are: work done by the employee, car park, manager's wage, electricity, Internet etc. Determining the length of the production cycleįactor of production (also called expenditure) is any kind of goods or services used in the production process.Blue Collar and White Collar 7ĬAPITAL Financial capital Money invested in a business to make it grow Basic assets used in production Capital goods (Physical capital)-products used to produce the final product machinery, tools, buildings, raw materials, factory, financial securities, company car, … Consumer good = the final product which is sold to consumers 8ĮNTREPRENEURSHIP Starting, operating, and expanding a business Operate businesses to make a profit 9ġ0 Productivity Measures the amount of output produced by a given number of inputs over a period of time. LABOR Work Human Capital A person’s potential for economic productivity Developed by natural talents, education, training, & good habits. LAND Gifts of Nature Property and natural resources Renewable resources Can be replaced Nonrenewable resources Cannot be replaced 6 What should we produce? How should we produce it? For whom should we produce it? 5 Economies produce goods and services to satisfy the people’s wants and needs. WANTS Necessities Things people desire but do not need 3Ĥ Economics The study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources. Social science that studies the choices of producers and consumers as they try to satisfy unlimited wants and needs with limited resources Economies produce goods and services to satisfy the people’s wants and needs. 1Ģ Economics The science of decision making. 1 PRODUCTION 7.01: Describe the basic factors of production such as land, labor, capital, and entrepreneurial skills and their impact on economic activities.
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