1. CISI – Introduction to Securities & Investment
Topic – The economic environment
(2.1.1) Economic activity

2. Factors of Production Land Labour Capital Enterprise
There are four kinds of inputs in any economic activity. These are used to satisfy the needs of consumers:
Land
Labour
Physical space required:
Fields for agriculture
Factory for manufacturing
Shop for retail
Office space
The workforce:
Skilled workers
Unskilled workers
Mixture of skilled and unskilled workers
Capital
Enterprise
Money invested in plant and equipment required:
Production machinery
Computer equipment
The ‘know how’, knowledge or ability to use the other three factors of production.

3. Managing the Factors of Production
Questions/
Economy type
Planned economy
Market economy
Mixed economy
Open economy
Who controls the factors of production?
Objective?
Advantages?
Disadvantages?
(Soviet Union)
(USA)
(UK)
(Singapore)
The Government and private sector
Either the Government or the private sector or a combination
The Government
Privately owned – businesses and individuals
Economic activity is carried out according to a plan under government control
The workforce is for the collective good of society, not for individual gain
Supply and demand allocates resources through the market (consumer goods, labour, money and capital goods )
The market clearing price is the price consumers are willing to pay and what suppliers will accept for them
A flourishing market economy but the government cushions the less able in society (welfare – benefits, care)
Government also provides key services e.g. defence and education via taxation and borrowing
Free Trade - an open relationship with outside countries
Few barriers to trade controls or foreign exchange
National priorities taken into account
Government can make more informed decisions regarding investment and the allocation of economic resources
Provides greater choice
Competition drives down prices
No taxation in a pure market economy
Businesses innovate
Businesses adapt and respond quickly
Faster economic growth
Increased economic stability – laws protect consumers and financial help can be offered to businesses
Provides unprofitable essential services e.g. NHS
Regulates monopolies
The best labour force
Specialisation
Imports provide products traditionally unavailable
Competition driving prices down and offers greater choice
Increased chance of failure
Prices rise if supply cannot meet demand
Businesses focus on profits
Less regard for individuals and the environment
Harmful products could be produced if profitable
Greater inequality
Disposable income reduced by taxation
Regulation means increased costs for businesses
Public sector organisations can mean inefficiencies
Increased pollution
Exploitation of cheap labour
Competition – products are bought cheaper elsewhere
Disagreements – sanctions and protectionism (World Trade Organisation arbitrates)
Diluted culture
Reduced individual choice
Increased bureaucracy

4. Managing the Factors of Production
Planned economy
Centrally controlled - rarely found today
Associated with communist states e.g. former Soviet Union
North Korea is presently the most centrally planned economy
Market economy
Supply and demand - pure market economies do not exist
Consumerism
Normally an element of government control in the real world
The most common form of economy
Government intervention can vary – provision of welfare, regulations and services provided deemed unprofitable to the private sector
Mixed economy
Open economy
Open trading relationships with other countries – Free Trade
No economy is ever completely open
Protectionism often occurs