Chapter 3: MGTA01 (Textbook Notes)

Chapter 3: MGTA01 (Textbook Notes)

The Theory of Factors of Production

Factors of production: The basic building blocks that are required to create a business as well as produce goods and services

The 4 factors of production:

1. Natural Resources
2. Labour
3. Capital
4. Entrepreneurship
5. Natural Resources: things found in nature

• Resources that grow out of/extracted from earth
• Some of Canada’s largest businesses rely on extracting natural resources

Resource Intensive: A business or a process that requires a large quantity of natural resources or is dependent upon them

• Eg. fruit farming

1. Labour: people who contribute their efforts to a business

• No business can exist without people

Labour intensive: A business/process that requires either a large number of workers or is particularly dependent on workers

1. Capital: Money or the machines and technologies that money can buy

• Eg. farmer can not produce crop without technology

Capital intensive: Business/process that requires either a large amount of capital or is particularly dependent upon capital

1. Entrepreneurs: people who are motivated to take the time, costs, and risks, to make something happen

Enterprise: A project/undertaking that requires energy and effort

• Outcome of enterprise is uncertain

Entrepreneurship: Willingness/motivation to take initiative and to accept the risk of failure in return for suitable gratification/reward

*Note to self: Entrepreneur is the character traits of a person, entrepreneurship is the actual thing I think

Factor Substitution: Replacing People With Machines

• Some businesses may depend more on one factor of production than the other, but all is required to make a business regardless of the dependency
• Producing more products can be accomplished by hiring more workers, but we can replace workers with technology

Factor substitution: substituting one factor of production (eg. capital) in place of another (eg. labour) so that products can be made more quickly or cheaply

The Industrial Revolution

Industrial Revolution: The period of history in 18th and 19th century when a number of inventions and discoveries (many of them labour-saving) transformed the most important industries of the age

Factory system: the concentration of work in large buildings erected for that purpose

A Fifth Factor - Information?

Agricultural Revolution: The period of history when a number of discoveries related to agriculture changed human society from a nomadic life to a settled one

Capitalists: The people who own the capital used as a factor of production

Information revolution: The period of history when a large number of inventions and discoveries in computing and information technology are changing the nature of businesses and having far-reaching consequences on society

• Many theorists/observers now suggest that there is a 5th factor of production: information
  • Suggests that businesses need to collect vasts amounts of information to understand and successfully meet the neds of their customers and to effectively use other factors