Ch14 - the factors of production and sectors of the economy

• Production


  Process that involves converting resources into goods or services which will be provided to satisfy the needs and wants of consumers
• Factors of production

  • Land
  • Labour
  • Capital
  • Enterprise
• Land

  • Business often requires a plot of land to locate or operate their premises
  • Includes non-renewable resources such as coal, oil, diamonds and limestone, these resources will run out someday
• Labour

  • The workforce in the economy including manual workers, skilled workers and managers
  • The value of an individual worker to a business is their human capital which is the value of the workforce depending on their training and education
• Capital

  • An artificial resource because it is made by labour
  • Divided into working capital and fixed capital
  • Working capital refers to stocks of raw materials and components that will be used up in the production which also includes stocks of finished goods that are waiting to be sold
  • Fixed capital refers to factories, offices, shops, machines, tools and equipment and furniture used in production, it is fixed because it will not be converted into a final product
• Enterprise

  • Entrepreneurs play a special role in the economy, they are responsible for setting up and running a business
  • They come up with a business idea
  • They are business owners, produce money to help set up a business and are responsible for its direction
  • Entrepreneurs are risk-takers, likely to risk their own money for the venture
  • Entrepreneurs are responsible for organising the other three factors of production, they have to hire other resources such as raw materials, tools, equipment and labour
• Sectors of the economy

  • Primary sector
  • Secondary sector
  • Tertiary sector
• Primary sector

  • Business activity that involves extracting raw materials from the earth
  • Agriculture
  • Fishing
  • Forestry
  • Mining and quarrying
• Secondary sector

  • Converting raw materials into finished or semi-finished goods
  • All manufacturing, processing lie within this sector
  • Includes metalworking, car production, textile production, chemical and engineering industries, aerospace manufacturing, energy utilities, engineering, food processing, construction and shipbuilding
• Tertiary sector

  • Involves the provision of a wide variety of services
  • Commercial services
  • Financial services
  • Household services
  • Leisure services
  • Professional services
  • Transport
• In the 18th century, most production was in the primary sector
• In the 19th century, secondary production expanded rapidly as manufacturing grew
• In the last 60 years, the tertiary sector started to expand at the expense of both agriculture and manufacturing
• Factors of why manufacturing declined in developed countries while services have grown

  • People may prefer to spend more of their income on services than manufactured goods
  • Fierce competition in the production of manufactured goods from developing countries
  • As countries develop, their public sector grows, since the public sector mainly provides services, this adds to the growth of tertiary sector
  • Machines replaces people so employment in manufacturing falls