1. Technology Sometimes defined as a 5th factor of production
Invention is the discovery of new knowledge while incorporation of this knowledge is called innovation
The application of inventions also requires entrepreneurs to identify the opportunities and exploit them
It can be argued that technology forms part of entrepreneurship

2. Money is NOT a factor of production!
Money is important, but it is not a factor of production
Goods and services cannot be produced with money. Money can buy the factors of production that is needed to produce goods and services, but the money itself cannot do anything.

3. Choice of technique?
When a production process is dominated by machines, it is called capital-intensive
When a production process is dominated by labour, it is called labour-intensive
The appropriate choice will depend on availability and quality of various production techniques as well as their costs + +

4. 3.3 Remuneration of the factors of production
Read pg. 45 – 46 in your textbook.
3.3 Remuneration of the factors of production
There are 4 types of income, each associated with a different factor of production
Natural Resources
Rent
Labour
Salaries and wages
Capital
Interest
Entrepreneurship
Profit

5. Read pg. 46 – 47 in your textbook.
3.4 Sources of spending
Households
Household = All the people who live together and make joint economic decisions or who are subjected to others who make such decisions for them
Households are the basic decision making unit in an economy
Members of households consume goods and services to satisfy their wants, they are consumers
Consumption (C) = the act of consuming goods and services
Households/consumers largely determine what should be produced in a market economy
Households sell their factors of production to firms who combine them to create goods and services
They receive income from the firms in the form of wages, interest, profit etc.

6. 3.4 Continue
Firms
Firm = unit that employs factors of production to produce goods and services that are sold in the goods market
Firms are engaged primarily in production
Firms always aim to achieve a maximum profit.
Profit is the difference between revenue and cost
Capital is one of the factors of production purchased by firms
The act of purchasing capital goods is called investment or capital formation (I)

7. Putting things together
Natural resources,
labour, capital and
entrepreneurship
Read pg. 49 in your textbook.
Putting things together
Production
Income
Spending
Rent, wages and salaries, interest and profit
Households,
firms, government & the foreign sector

8. Circular flow of goods and services
Read pg. 50 in your textbook.
Circular flow of goods and services
Goods market
Goods and services
Goods and services
Firms
Households
Firms then buy these factors of production because they need the factors of production to produce goods and services
In turn, household own factors of production, such as labour, capital, etc. And they offer to sell these factors of production on the factor market
Firms offer goods and services for sale on the goods market
Then households buy these goods and services
Factor market
Factors of Production
Factors of Production

9. Circular flow of goods and services
Read pg. 50 in your textbook.
Circular flow of goods and services
Goods market
Goods and services
Goods and services
Income
Spending
Firms
Households
Then, firms spend on the factor market to get factors of production
So, households spend on the goods market.
And that is how households get an income.
And that becomes the income of the firms.
Factor market
Factors of Production
Spending
Income
Factors of Production

10. Study Box 3-4 in your textbook.
Markets
Goods market
Factor market
Market for goods and services
In macroeconomics we treat the goods market as if there were only one market for all goods in the economy (aggregation)
In microeconomics, markets are analysed individually
Market for various factors of production
Factor markets include the labour markets and markets for capital goods
In macroeconomics we aggregate the factor markets
In microeconomics markets are analysed individually