Unit 2, Lesson 5 Factors of Production

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Unit 2, Lesson 5 Factors of Production AOF Business Economics Unit 2, Lesson 5 Factors of Production Copyright © 2008–2011 National Academy Foundation. All rights reserved. Copyright © 2008–2011 National Academy Foundation. All rights reserved.

Economics deals with the stuff we need to make other stuff Factors of production are the economic resources needed to produce goods and services Three factors of production: land, labor, and capital Entrepreneurship ties these factors together into a productive enterprise Each is limited in supply (scarcity) The entrepreneur’s job is to combine the three factors of production to create new products and services Copyright © 2008–2011 National Academy Foundation. All rights reserved.

For economists, land is more than dirt Land: all the natural resources found on or under the ground that are used to produce goods and services Water Forests Fish Iron Coal Oil Plants Why wouldn’t a parking lot be considered a land factor of production? Copyright © 2008–2011 National Academy Foundation. All rights reserved.

For economists, labor is more than elbow grease Labor: all the human time, effort, and talent used to produce goods and services Garbage collectors Mechanics Heart surgeons Construction workers Why would a heart surgeon and a construction worker fall under the labor factor of production category? Copyright © 2008–2011 National Academy Foundation. All rights reserved.

For economists, capital is more than money Capital: Resources made and used by people and kept to use in producing and distributing goods and services Tools Machinery Factories Offices Computers Cell phones Roads Airports When a business buys a new machine in order to become more productive, it is called investing in physical capital. But it can also invest in human capital. What do you think that means? Copyright © 2008–2011 National Academy Foundation. All rights reserved.

For economists, it matters who gets the ball rolling Entrepreneurship: the bringing together of all the factors using ingenuity, skill, vision, and a willingness to take the risks necessary for starting a new business enterprise Steve Jobs, Apple Computer Robert Johnson, BET Jerry Yang, Yahoo! Can someone start a new business without taking a risk? Copyright © 2008–2011 National Academy Foundation. All rights reserved.

How these factors are interconnected is critical The Circular Flow Model Product Market Factor Market Source: http://en.wikipedia.org/wiki/Circular_flow Copyright © 2008–2011 National Academy Foundation. All rights reserved.