• An economic system attempts to resolve the economic problem: • Free market economies: attempt to solve the economic problem with minimum Gov. Intervention • Command economies: the state makes most resource allocation decision
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All face the same problem:
1. What is to be produced? How much spending should be allocated on investment, defence environment etc?
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2.
2. How is production to be organised? Where products should be made? What resources should they be made up off? Should we utilise machines or workers?
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3.
3. For who is production to take place? How much output should workers receive? How much should pensioners get?
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Factors of Production
types of resources available for use in the production process
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Land
Land itself and every natural thing below the earth // in the atmosphere // and in the sea
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Non - renewable resources
land resources, which once used will never be replaced e.g. coal, oil, and gold
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Renewable resources
land resources that can be used and replaced e.g. fish stocks, forests or water
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Sustainable resources
particular type of renewable resource - can be exploited economically- will not diminish or run out - will survive over time despite economic activities e.g. commercial logging
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Non sustainable resource
diminishing over time due to economic exploitation // oil is unsustainable – cannot be replaced
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Labour
workforce of an economy // each worker has a unique set of skills – products of education and training = Value of a worker: human capital which will increase from education and training = more productivity
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Capital
manufactured stocks of all the components needed for the production of a good/service - there are two types of capital
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Working capital
stocks of raw materials/ semi/finished goods waiting to be sold are circulated through the production process till finally sold to the consumer
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Fixed capital
stock of factories (e.g. offices, machinery) that will not be turned into a final product // used to transform working capital into finished products
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Enterprise
seeking out profitable opportunities for production and taking risks to exploit these
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Entreperneurs are those whom...
Organise production- 4 factors Take risks – with own money and financial capital of others // buy factors of production in hope that the products made will make profit – if they don’t they can lose all of their money and go bankrupt
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Rewards are given to those who own some factors of production
receive payments when they allow other economic agents to use them
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Rewards for Land owners
may receive rent/lease payments
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Labour owners
wages/earnings
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Capital owners
such as machinery, factories, hospitals can earn different types of income from leasing/renting these physical assets. E.g. rent/lease income/ share of any profits made from their use
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Entrepreneurs
earn profit, risking financial capital and organising the factors of production to produce goods and services.
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Other cards in this set
Card 2
Front
All face the same problem:
Back
1. What is to be produced? How much spending should be allocated on investment, defence environment etc?
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