14 The Factors Of Production And Sectors Of The Economy

Production

Production

Process that involves converting resources into goods or services

Factors of production

Resources used to produce goods and services, which include land, labor, capital and enterprise

What are the four factors of production?

• capital

  • = an artificial resources because it is made by labour

  • Working capital or circulating capital : refers to stocks of raw materials and components that will be used up in production. Finished goods that are waiting to be sold.

  • Fixed capital : refers to the factories, offices, shops, machines, tools, equipment and furniture used in production. It is used in production to convert working capital into goods and services.

• Enterprise

  • = play a special role in the economy. Responsible for setting up and running businesses.

  • They come up with business idea : ex) involve the production of a completely new product.

  • They are business owners : provide some money to help set up a business and are responsible for its direction.

  • Entrepreneurs are risk-takers : they are likely to risk their own money in the venture.

  • Entrepreneurs are responsible for organizing the other three factors of production : they have to buy and hire other resources such as raw materials, tools, equipment and labour.

• Land

  • business often require a plot of land on which to locate or operate their premises

  • Land also includes natural resources

  • Non renewable (minerals deposits like coal, oil, diamonds and limestone) land resources will completely run out

  • renewable land resources ( fish, forests and water) are replaced by nature which should not run out but it is risk as if it is not protected or over exploited they could disappear

• Labour

  • workforce in the economy

  • The value of an individual worker to a business is their human capital

  • It is possible to increase the value of human capital through training and education which will help make workers more productive.

Human capital

Value of the workforce or an individual worker

Working capital or circulating capital

Resources used up in production such as raw materials and m component.

Fixed capital

Stock of ‘man-made’ resources such as machines and tools, used to help make goods and services

Entrepreneurs

Individuals who organize the other factors of production and risk their own money in a business venture

Capital intensive

Production that relies more heavily on machinery relative to labour

Labour intensive

Production that relies more heavily on labour relative to machinery.

Economic activity has how many sectors?

1) primary sector

2) secondary sector

3)Tertiary sectors

Primary sector/industry

Production involving the extraction of raw materials from the earth

Example of primary sectors

• agriculture ; a range of farming activities mostly for food production

• Fishing ; catching or gathering fishes or other types of seafood

• Forestry ; managing forests to provide timber for wood products

• Mining and quarrying ; extraction of raw materials

Secondary sector/ industry

Production incoming into finishes and semi- finished goods

Example of secondary sector

Business activities include metalworking, car production, textile production, chemical and engineering industries, aerospace manufacturing, energy utilities, engineering, food processing, construction and shipbuilding.

Semi finished goods after also sold which is used as inputs for the production of final goods. Example, steering wheels, car seats, brakes, light fittings, engines, electric cables and exhaust systems to make motor cars.

Tertiary sector/industry

Production services in the economy

Example of tertiary sector

• commercial services : freight delivery, debt collection, printing and employment agencies

• Financial services : banking, insurance, investment advice and pensions

• Household services : plumbing, decorating, gardening and house maintenance

• Leisure services : television, tourism, hotels and libraries

• Professional services : accountancy, legal advice and medical

• Transport : train, taxi, bus and air services

De-industrialization

Decline in manufacturing

Why has manufacturing declined in developed countries while services have grown?

• people prefer to spend their income on services than manufactures goods

• There is fierce competing in the production of manufactured goods from developing countries

• As public sector grows, it mainly provides services, which then adds to the growth of tertiary sector

• Advances in technology mean that employment in manufacturing falls because machines replace people