January 4, 2017 Notes - Factors of Production
7:48 PM
Factors of Production
Factors of Production - Land, Labor, Capital and Entrepreneurship
- Land - Includes any natural resources used to produce goods and services.
- Labor - The effort that people contribute to the production of goods and services.
- Capital - The machinery, tools, and buildings that people use to contribute to the production of goods and services.
A - Human Capital: When people acquire skills and knowledge through experience and education.
B - Physical: Consists of money, tools, buildings, equipment and machinery
- Entrepreneurship - A person who combines the other factors of production (Land, Labor, Capital) to earn a profit. Most are innovators and risk takers.
Trade offs - An alternative we sacrifice when we make a decision.
Opportunity Costs - When the most desirable alternative is lost as a result of a decision.
Guns or Butter - Trade-offs the government makes when choosing whether to produce more or less military/consumer goods.
Thinking at the Margins - Deciding whether to add or subtract one additional unit of some resource.
Production Possibilities Graph - Graph that shows alternative ways to use an economy’s resource.
Efficiency - An economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency.
Inefficiency - The opposite of economy efficiency
Under utilization - Leads to decreased profits.
4 Key Assumptions
- Only 2 goods can be produced
- Full employment of resources
- Fixed resources (factors of production)
- Fixed technology
1 comments
Many of these terms and definitions tie to my Global Business class. Human capital plays a major role in foreign trade, as it may determine if the country is specialized in creating specific items such as software and computers.
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