Factors of Production

1. Objectives Factors of Production • Identify the four factors of production - land, labor, capital, and entrepreneurship. Explain the role of each in the production cycle • Demonstrate understanding of key concepts as it relates to the factors of production. • Apply knowledge of the four factors by creating a visual representation of a production cycle.

3. List on paper everything that went into making the candy bar from the time someone had the idea for the candy until the consumer purchased the candy off the store shelf.

4. Factors of Production Definition: The resources used to produce goods and services.

5. HOW ARE GOODS PRODUCED? Factors of production are grouped into four categories: • Land (Natural Resources) • Labor (Human Resources) • Capital • Entrepreneurship

7. HOW ARE GOODS PRODUCED? LAND What raw materials are needed to produce your product? • The “gifts of nature” that we use to produce goods and services. All the things we call natural resources. • Comes from the air, water, or the earth • Land, minerals, water • Renewable • Water, air growing things • Non-Renewable • Coal, oil

8. Factor 1: Natural Resources • Nature supplies raw materials necessary to make things • These raw materials are called Natural Resources • Example: Chicken noodle soup contains chicken meat, spices, water, and vegetables, all of which came from the nature

9. HOW/WHERE ARE GOODS PRODUCED?

10. HOW ARE GOODS PRODUCED? LABOR • What will your employees have to do to create your product? • What work will need to be done to turn your raw material into your finished product • Work time and work effort that people devote to producing goods and services • People’s efforts, labor • Effort can be physical or mental

11. Factor 2: Human Labor • Human effort used to produce goods and services is called labor • Labor can be physical or mental • Mental – product of the human brain, rather than the body. • Physical – work done by individual (hands on) • Example: to the soup, farmers raise the animals and crops, a truck driver drives them to a factory, and workers operate machinery to mix and can it (physical labor) • Someone has to design the machines, and think of a recipe for the soup (mental labor)

12. HOW ARE GOODS PRODUCED?

13. HOW ARE GOODS PRODUCED? CAPITAL • What equipment and people will you need to create your product • Physical capital: What tools, machines and factories will you needed to create your product • Financial capital: funds the firm use to buy physical capital • Human capital: What knowledge, skills, education and experience will your employees need to have in order to produce your product (for example: a seamstress , a chemist, a computer technician ) • Goods made by people and used to produce other goods and services • Tools, instruments, machines, buildings, and other constructions that have been produced in the past and that businesses now use to produce goods and services.

14. Factor 3: Capital Resources • Producing goods and services requires tools and equipment • The buildings, machines, supplies, etc. used to produce are called capital resources, orcapital goods • Examples: the truck used to drive to the factory, the machines used to can the soup, and the factory building itself

15. HOW ARE GOODS PRODUCED? ENTREPRENEURSHIP • The human resource that organized and combines labor, land, capital. • The quantity and quality of entrepreneurship is hard to describe and measure. • But we can easily recognize brilliant entrepreneurs by their enormous financial success. • Sam Walton (Wal-Mart), Bill Gates (Microsoft), and Michael Dell (Dell Computers) are examples of outstanding entrepreneur's.

16. Influences on Entrepreneurs Decision Making • Scarcity- Nearly all resources are scare, meaning there is a limited supply available to meet unlimited wants • The more scarce a resource, the more expensive it is. • Inverse Economic Relationship – when fruit is out of season, supply is more scarce – • This causes the price to increase because it is more valuable

17. Influences on Entrepreneurs Decision Making • Opportunity Cost – resources are scare, the choice to use a resource in one way means not using it in another. • Use a field to grow corn means the field cannot be used to grow soy beans

18. Influences on Entrepreneurs Decision Making • Productivity- is a measure of the amount of output produced by a given amount of inputs. It reflects how efficiently resources are being used. • This is also referred to as measuring the efficient use of the factors of production. • For example, the productivity of a farmer (labor) increases with the use of a tractor (capital). • Investing in human capital is one way to increase productivity

19. Influences on Entrepreneurs Decision Making • To realize a profit, produce good/service at a cost lower than the market price for the good or service. • Profit is the money left over from selling a good or service after the cost of buying productive resources have been paid. • Minimize the use of scarce resource in production • Maximize the productivity of the factors used in production to keep cost as low as possible.

20. Entrepreneurship: The 4th Factor • Making the other 3 factors of production into something useful often takes creativity and some risk • Entrepreneurship is the factor of production that ties the others together • Examples: Someone has to decide what to name the soup, where to sell it, and how much to charge

21. Factors of Production