Unit 2 - Business Economics: Chapter 14: Factors of Production and Sectors of the Economy

Understand the four factors of production: land, labor, capital, and enterprise.
Understand the different sectors of the economy: primary, secondary, and tertiary.
Understand the changes in the importance of these sectors in terms of employment and output over time in developing and developed economies.

Factors of production: Resources used to produce goods and services, including land, labor, capital, and enterprise.
Production: The process of converting resources into goods or services to satisfy needs and wants.
Examples of production:
- A baker using flour, yeast, salt, and water to make bread.
- A computer manufacturer assembling components to make laptops.
- A dentist extracting a diseased tooth.
- A taxi driver transporting a family to the airport.

Businesses require land to operate their premises.
Land includes natural resources like coal, oil, iron ore, rainwater, forests, rivers, and fertile soil.
Non-renewable resources: Resources that cannot be replaced once used (e.g., coal, oil, diamonds, limestone).
Renewable resources: Resources that are replaced by nature (e.g., fish, forests, water). These resources need protection to prevent over-exploitation.
- Less than 7% remains of Brazil's Atlantic Forest (once covered 130 million hectares) due to expanding urban areas and increased agricultural and industrial development.

Labor refers to the workforce in the economy, including manual workers, skilled workers, and managers.
Each worker is unique, with different abilities, skills, knowledge, intelligence, and emotions.
Human capital: The value of an individual worker to a business. It can be increased through training and education, which enhances productivity.

Capital is an artificial resource made by labor.
Working capital (or circulating capital): Resources used up in production, such as raw materials, components, and stocks of finished goods.
Fixed capital: Factories, offices, shops, machines, tools, equipment, and furniture used in production. It is fixed because it is not converted into a final product but is used to convert working capital into goods and services.

Entrepreneurs organize the other factors of production and risk their own money in a business venture.
Roles of entrepreneurs:
- Come up with a business idea, which could be a new product or an improvement on existing products.
- Act as business owners, providing money and direction for the business.
- Take risks, potentially losing money if the business fails but making a profit if it succeeds.
- Organize the other three factors of production by buying and hiring resources.

Capital intensive: Production that relies more heavily on machinery relative to labor.
Labour intensive: Production that relies more heavily on labor relative to machinery.
Labor-intensive production is common in regions with cheap labor (e.g., China) and in the provision of services.
Capital-intensive production is often favored in Western economies due to the challenges of managing labor.

The economy is divided into different sectors.
*Note: Some economies rely heavily on migrants when increasing production. For example, during the 2000s, large numbers of Eastern Europeans moved to Germany looking for work. Many of them were employed in the service industries to help increase production.

Primary sector: Business activity involves extracting raw materials from the earth.
Examples:
- Agriculture: Farming activities for food production and other products, such as cut flowers.
- Fishing: catching or gathering seafood. China is the world's largest fish producer.
- Forestry: Managing forests for timber and protecting the natural environment.
- Mining and quarrying: Extracting raw materials such as coal, iron ore, copper, tin, salt, limestone, oil, and gas. Saudi Aramco is an example of a primary sector business.

Secondary sector: Business activity involves converting raw materials into finished or semi-finished goods. This includes manufacturing, processing, and construction.
Examples:
- Metalworking
- Car production
- Textile production
- Chemical and engineering industries
- Aerospace manufacturing
- Energy utilities
- Food processing
- Construction
- Shipbuilding
Some businesses focus on producing semi-finished goods (intermediate goods or producer goods) used as inputs for final goods.
- A single car may use around 30000 different parts in assembly.

The number of people employed in each sector changes over time.
Sectors grow and decline according to economic and social changes.
De-industrialisation: The decline in manufacturing in developed countries.
Historically:
- Before the Industrial Revolution in the UK, most production was in the primary sector.
- During the 19th century, the secondary sector expanded rapidly during the Industrial Revolution.
- In the last 60 years, the tertiary sector has expanded at the expense of agriculture and manufacturing.
Reasons for the decline in manufacturing and growth in services in developed countries:
- People may prefer to spend more of their income on services.
- There has been a decline in the demand for goods from traditional manufacturing industries (e.g., shipbuilding and textiles).
- There is fierce competition in the production of manufactured goods from developing countries (e.g., Brazil, China, and India).
- As countries develop, their public sector grows, which adds to the growth of the tertiary sector.
- Advances in technology mean that machines replace people in manufacturing, leading to reduced employment.

Significant differences exist in the economic structures of developed and developing countries.
In developed countries, the primary sector is less important than the tertiary sector, with a small percentage of the workforce employed in primary activities.
In many developing countries, the secondary sector is growing, along with some expansion of the tertiary sector.
In very undeveloped countries, most people are employed in the primary sector, with weak growth in manufacturing and services.
- In Tanzania (2014 est.): Agriculture employs 66.9%, Manufacturing employs 6.4%, Services employ 26.7% of the workforce.
- In Japan (2015 est.): Agriculture employs 2.9%, Manufacturing employs 26.2%, Services employ 70.9% of the workforce.