Factors of Production

Factors of production

Factors of production are the basic resources used in the production process in order to produce economic goods and services. Economists have classified the factors of production into four groups namely:

                           i.                  Land

This is free gift of natures either on the surface or in the earth. The value based on quality and location. Return to the land is fees. Examples are land, air, water, forest and others.

                         ii.                  Labour

The services contributed by people in the production process that involve both mental and physical effort. That’s include the skill and unskillful. Return to the labour is wages. Examples are lectures, construction workers and others.

                       iii.                  Capital

Human made resources which are used in the production process to produce other goods and services. Return to the capital is interest. Examples are machinery, raw material, buildings, tools and others.

                       iv.                  Entrepreneurship

This human creation is including the tools, machinery, and raw material is uses in production process. Return to the entrepreneurship is profit.

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Basic Economy Problems

The basic economic problems.

To achieve maximum satisfaction, people need making the best choice as the guide, so five economics basic question need to be answered first.

1.         What to produces

·         This problem is concerned with that goods and services will be produces.

·    This problem was happen because limited factors of production but demand for the goods and services is not limited.

·         So, the firms will produces goods base on demand of the goods and the goods must give the maximum utility to people.

2.         How much to produces

·    The firm must decide how many quantity of the product should be produces.

·         So, it must be base on total demand for the goods.

·         If goods are high demand, the firm must produces with the high quantity.

3.         How to produces

·         How the goods will produces, usually the firm will make decision either use the labor intensive or capital intensive.

·         The producers will choice the intensive will decreasing the production cost.  

4.         For whom to produces

·         This is the target market in to sell the product.

·         This problem will cause the producer to decide to distribute the goods and services to society.

·         The goods are distributing base on income of people.

·         Usually, people with high income are able to consume more goods and services than people with low incomes.

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Basic Economy Concepts

The basic economic concepts.

There are 3 basic economic concepts in relation to economics definition.

                           i.                  Scarcity

The problems of economics arise because we do not have enough resources to produce everything we want. The factors of production are limited and the amount of output that can be produced is also limited.

It means that there are not enough available goods for everyone to freely take as much as they want. Due to this, we have to choose the best alternative of goods and services to be produced by the society.

                         ii.                  Choice

Because of the resources in the world are limited, we cannot satisfy all our wants and force us to choose. Choice involves a rational decision to be made due to scarcity of resources in order to satisfy unlimited human wants. A choice has to be made among several wants which involves some trade off known as opportunity cost.

                       iii.                  Opportunity cost

Opportunity cost is concerned with the problem of choice and the fact of scarcity, forces us to make choices. So, that opportunity cost is defined as the value of the best alternative foregone when a choice is made.

Example:

Dina has RM5 and she would like to buy two things: a book and a pen which cost RM5 each (unlimited wants but limited resources). Dina has to choose either to purchase a book or a pen which would satisfy her needs (choices). If Dina chooses the book, then the pen is the opportunity cost because it is the second best alternative which she has to forgone.

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Positive and Normative economy statement

Positive economy statement versus normative economy statement.

                            i.                  Positive economy statement is a statement which based on facts and not value judgement. Can be tested and verified.

Example: Ethiopia is the poorest nation in the world.

                         ii.                  Normative economy statement is a statement which is bases on value judgement and on personal opinion.  Cannot be tested.

Example: The government of Ethiopia is very inefficient.

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Definition of Economy

Definition of economy

The term of economy is existence from Yunani. The word of Yunani; “OIKAU”defined as household and “NOMOS” defined as rules. From the words, the Yunani society was making the rules of human behavior like how the people making the decision.

“Human have unlimited demand and usually want something exceeding than what that they afford whether someone a rich or poor. Due to this, they need to make the best choices and forced to release different options.”

From the statement above, “Economics is social science research about individual and society attitude to contribute and distributed the limited factors of production to produce the unlimited demand of the goods and services.”

Research in economy is included the microeconomics and macroeconomics issue. The both of that’s, is the research about the different part in economy. Microeconomics is research in the small unit of economy namely action by the Firm and Household while the macroeconomics is research about the whole of economy issue in the country included the inflation, unemployment, economy growth and so on. 

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