Factors of Production

1
Factors of Production

• The factors of production include
• Factors of production ? what people use
• Renewable resource? it can be drawn on
• Non-renewable resource ? a resource that cannot

2
Land and Labor

• Land? all the natural
• An acre of land, mineral deposits, and water in
• Labor? the physical and mental talents that people

3
Capital and Physical Capital

• Capital? any human-made resource that is used to
• Physical capital? human-made goods that include
  buildings, tools, computers,
• Physical capital is an important factor of
  production because it can

4
Example of Physical Capital

• Example? lets say you have a family of 6 that
  washes dishes by hand after each meal (21 meals
  per week). It takes 30 minutes per meal for 2
  family member to do all the work. Thats 21
  hours per week that could have been spent on
  other more productive activities. As a result,
  they decide to buy a 400 dishwasher. Using the
  dishwasher it will take only 15 minutes for one
  person to clean up after each meal (5.25 hours
  per week). The benefits your family reaps from
  the free time will cover the cost of the new
  dishwasher. The following slide will show the
  typical benefits of physical capital

5
Benefits of Physical Capital

• Extra Time? you no longer have to spend 21 hours
  doing dishes.
• More Knowledge? by learning how to use the new
  machine,
• More productivity? with extra time and extra
  knowledge, you can use your resources and labor to

6
Human Capital

• Human capital? the skills and knowledge gained by
  a
• An economy requires both physical and human
• Example
• doctors use stethoscopes and education to
  produce services
• Assembly-line workers use equipment as well as
  skills acquired through training and practice to
  produce goods

7
Entrepreneurs

• Entrepreneurship? the special talent that some
  people have for searching out and taking
  advantage of new business opportunities
• They decide how to combine land, labor, and
  capital
• An individual who opens a corner store and
  transforms it into a 10-store supermarket chain
  is an entrepreneur.

8
Using Scarce Resources

• Economists say that all goods and services are
  scarce because the
• Example? French Fries
• The quantity of land and water for growing
  potatoes is limited
• The labor available to grow the crop and to
  process and transport the potatoes is limited by
  the size, time, age, and energy of a population
• Because land and labor are limited, the amount of
  physical capital to create the French fries (like
  farm equipment) is limited
• No matter what good or service we look at,