Chap 14

• Factors of Production


  Resources available for producing goods and services in an economy
• Factors of Production


  • Land
  • Labour
  • Enterprise
  • Capital
• Land


  • Natural resources available for production
• Non-renewable resources


  Finite in supply - once they have been used they cannot be replaced
• Renewable resources


  Replaceable over time providing that the rate of extraction of the resource is less than the natural rate at which the resource renews itself
• Labour


  • People's efforts to make products
  • Training and education increases the value of human capital which means workers will be more productive
• Capital


  • Resources such as finance, raw materials, machinery & equipment to make goods/services
• Types of Capital


  • Working Capital or Circulating Capital
  • Fixed Capital
• Working Capital or Circulating Capital


  Resources used in production such as raw materials, WIP, Finished goods waiting to be sold
• Fixed Capital


  Man-made resources such as factories, offices, plant & machinery used in production to convert working capital into goods/services -> will not be sold or transformed into a final product as working capital
• Enterprise


  • People that have skills & have risk-taking ability and combine factors of production to produce good or service
• Entrepreneurs


  • Come up with a business idea
  • Provide money to set up a business - responsible for its direction (expand)
  • Risk-takers: if business fails they could lose all their money invested in - if successful will receive profits
  • Organise the other 3 factors of production: buy raw materials, machinery, land and hire people. They use a range of skills such as decision making, people management, time management and financial judgement to organise production factors effectively
• Capital intensive production


  Production which relies more heavily on machinery relative to labour
• Labour intensive production


  Production which relies more heavily on labour relative to machinery
• Sectors of business activity

  • Primary
  • Secondary
  • Tertiary
• Primary Sector


  Raw materials/natural resources extracted from the earth
• Secondary or Manufacturing Sector


  Raw materials are transformed into finished goods or semi-finished goods
• Tertiary or Service Sector


  Provision of services such as transport, distribution, financial services, health and education
• The number of people employed in each sector of a country does not stay constant over time
• Before 18th century mostly primary sector
• During 19th century - secondary sector expanded
• During last 60 years - tertiary sector expanded -> (de-industrialisation)
• De-Industrialisation


  Decline in the importance of the secondary, manufacturing sector of industry in a country
• Why has manufacturing declined in developed countries while services have grown?

  • People may prefer to spend more of their income on services than manufacture goods
  • Fierce competition from developing countries such as China
  • As countries develop, their public sector grows - since public sector mainly provides services, this adds to the growth of tertiary sector
  • Advances in technology mean that employment in manufacturing falls because machines replace people