Factors Of Production Answer Key

2.one Factors of Product

Learning Objectives

Define the iii factors of product—labor, upper-case letter, and natural resources.
Explain the function of technology and entrepreneurs in the utilization of the economy'due south factors of production.

Choices concerning what goods and services to produce are choices about an economy'due south use of its factors of production, the resources available to it for the production of goods and services. The value, or satisfaction, that people derive from the appurtenances and services they consume and the activities they pursue is called utility. Ultimately, then, an economy's factors of production create utility; they serve the interests of people.

The factors of production in an economic system are its labor, capital, and natural resources. Labor is the homo endeavour that can be applied to the production of goods and services. People who are employed or would like to be are considered part of the labor available to the economy. Majuscule is a factor of production that has been produced for utilize in the production of other goods and services. Part buildings, mechanism, and tools are examples of capital. Natural resources are the resource of nature that can exist used for the product of goods and services.

In the next three sections, nosotros volition take a closer look at the factors of production we apply to produce the goods and services we consume. The three basic building blocks of labor, capital, and natural resource may be used in different ways to produce different goods and services, only they however prevarication at the core of product. We will so expect at the roles played by applied science and entrepreneurs in putting these factors of production to piece of work. Equally economists began to grapple with the problems of scarcity, choice, and opportunity cost 2 centuries agone, they focused on these concepts, just as they are probable to do two centuries hence.

Labor

Labor is homo effort that can be applied to production. People who work to repair tires, airplane pilot airplanes, teach children, or enforce laws are all function of the economy'due south labor. People who would like to piece of work but have not institute employment—who are unemployed—are also considered part of the labor bachelor to the economy.

In some contexts, it is useful to distinguish 2 forms of labor. The start is the homo equivalent of a natural resource. It is the natural ability an untrained, uneducated person brings to a particular production procedure. Merely most workers bring far more than. The skills a worker has as a outcome of teaching, grooming, or experience that tin can exist used in production are called human capital. Students who are attending a college or academy are acquiring human upper-case letter. Workers who are gaining skills through feel or through grooming are acquiring human capital. Children who are learning to read are acquiring human uppercase.

The amount of labor available to an economy can exist increased in two ways. 1 is to increase the total quantity of labor, either past increasing the number of people available to work or by increasing the average number of hours of work per week. The other is to increment the amount of human uppercase possessed by workers.

Upper-case letter

Long ago, when the offset human beings walked the globe, they produced food past picking leaves or fruit off a plant or by communicable an animal and eating information technology. Nosotros know that very early on, however, they began shaping stones into tools, obviously for apply in butchering animals. Those tools were the kickoff capital because they were produced for use in producing other goods—food and wear.

Mod versions of the commencement rock tools include saws, meat cleavers, hooks, and grinders; all are used in butchering animals. Tools such as hammers, screwdrivers, and wrenches are also capital. Transportation equipment, such every bit cars and trucks, is capital. Facilities such as roads, bridges, ports, and airports are upper-case letter. Buildings, besides, are capital; they help us to produce appurtenances and services.

Capital does non consist solely of concrete objects. The score for a new symphony is uppercase because information technology will be used to produce concerts. Estimator software used by business firms or regime agencies to produce goods and services is capital. Capital may thus include physical appurtenances and intellectual discoveries. Any resource is capital if it satisfies two criteria:

The resource must have been produced.
The resource can be used to produce other goods and services.

One thing that is not considered capital is coin. A firm cannot use money directly to produce other goods, so money does not satisfy the 2d criterion for capital letter. Firms tin, however, utilise money to acquire uppercase. Money is a form of financial capital. Financial capital includes money and other "paper" avails (such every bit stocks and bonds) that stand for claims on future payments. These financial avails are not capital, but they can be used directly or indirectly to buy factors of product or goods and services.

Natural Resources

There are two essential characteristics of natural resources. The get-go is that they are establish in nature—that no man effort has been used to make or alter them. The 2d is that they can exist used for the product of goods and services. That requires knowledge; we must know how to use the things nosotros discover in nature before they become resources.

Consider oil. Oil in the basis is a natural resource considering it is found (non manufactured) and tin can be used to produce goods and services. However, 250 years ago oil was a nuisance, non a natural resources. Pennsylvania farmers in the eighteenth century who found oil oozing up through their soil were dismayed, not delighted. No i knew what could be washed with the oil. It was not until the mid-nineteenth century that a method was establish for refining oil into kerosene that could be used to generate energy, transforming oil into a natural resources. Oil is now used to make all sorts of things, including clothing, drugs, gasoline, and plastic. It became a natural resource considering people discovered and implemented a way to use it.

Defining something every bit a natural resource only if it can exist used to produce goods and services does not mean that a tree has value but for its forest or that a mountain has value only for its minerals. If people gain utility from the existence of a beautiful wilderness area, so that wilderness provides a service. The wilderness is thus a natural resources.

The natural resources available to the states can exist expanded in three ways. One is the discovery of new natural resources, such as the discovery of a eolith of ore containing titanium. The 2nd is the discovery of new uses for resources, as happened when new techniques allowed oil to be put to productive use or sand to be used in manufacturing computer fries. The third is the discovery of new means to excerpt natural resources in order to use them. New methods of discovering and mapping oil deposits have increased the world's supply of this important natural resources.

Engineering and the Entrepreneur

Appurtenances and services are produced using the factors of production bachelor to the economic system. 2 things play a crucial role in putting these factors of production to work. The first is engineering science, the knowledge that can be practical to the production of goods and services. The second is an private who plays a cardinal role in a market economic system: the entrepreneur. An entrepreneur is a person who, operating within the context of a market economy, seeks to earn profits by finding new ways to organize factors of product. In not-market economies the role of the entrepreneur is played by bureaucrats and other decision makers who respond to incentives other than profit to guide their choices about resources allocation decisions.

The interplay of entrepreneurs and technology affects all our lives. Entrepreneurs put new technologies to piece of work every twenty-four hour period, changing the mode factors of production are used. Farmers and factory workers, engineers and electricians, technicians and teachers all work differently than they did just a few years ago, using new technologies introduced by entrepreneurs. The music you relish, the books you read, the athletic equipment with which you lot play are produced differently than they were 5 years ago. The book you are reading was written and manufactured using technologies that did non exist 10 years ago. Nosotros can dispute whether all the changes have fabricated our lives ameliorate. What we cannot dispute is that they have made our lives different.

Key Takeaways

Factors of product are the resource the economic system has bachelor to produce goods and services.
Labor is the human effort that tin be applied to the production of goods and services. Labor's contribution to an economic system's output of goods and services tin can exist increased either past increasing the quantity of labor or past increasing human capital.
Uppercase is a factor of product that has been produced for utilize in the production of other goods and services.
Natural resources are those things found in nature that tin can be used for the production of goods and services.
Two keys to the utilization of an economy's factors of production are technology and, in the case of a market economical system, the efforts of entrepreneurs.

Endeavor It!

Explain whether each of the following is labor, capital, or a natural resources.

An unemployed factory worker
A higher professor
The library building on your campus
Yellowstone National Park
An untapped deposit of natural gas
The White House
The local power plant

Example in Signal: Engineering Cuts Costs, Boosts Productivity and Profits

Figure 2.one

Oil Platform in the ocean

Technology tin seem an abstract force in the economic system—of import, but invisible.

It is not invisible to the 130 people who work on a Shell Oil Company oil rig called Mars, located in the deep waters of the Gulf of Mexico, nigh 160 miles southwest of Pensacola, Florida. The proper name Mars reflects its otherworld appearance—it extends 300 anxiety above the h2o's surface and has steel tendons that achieve iii,000 anxiety to the floor of the gulf. This facility would not exist if it were non for the development of better oil discovery methods that include 3-dimensional seismic mapping techniques, satellites that locate oil from space, and drills that tin can make turns equally drilling foremen steer them by monitoring them on figurer screens from the comfort of Mars. "Nosotros don't hit as many dry holes," commented Shell manager Miles Barrett. As a result of these new technologies, over the by 2 decades, the cost of discovering a barrel of oil dropped from $20 to under $5. And the technologies continue to improve. Iii-dimensional surveys are being replaced with iv-dimensional ones that allow geologists to encounter how the oil fields change over time.

The Mars project was destroyed by Hurricane Katrina in 2005. Purple Dutch Shell completed repairs in 2006—at a cost of $200 meg. But, the facility is once more pumping 130,000 barrels of oil per day and 150 million cubic anxiety of natural gas—the energy equivalent of an additional 26,000 barrels of oil.

Engineering science is doing more helping energy companies runway oil deposits. Information technology is changing the way soft drinks and other grocery items are delivered to retail stores. For example, when a PepsiCo commitment commuter arrives at a 7-Xi, the driver keys into a handheld computer the inventory of soft drinks, chips, and other PepsiCo products. The data is transmitted to a main reckoner at the warehouse that begins processing the next order for that store. The effect is that the driver can visit more stores in a day and PepsiCo tin can embrace a given territory with fewer drivers and trucks.

New technology is even helping to produce more milk from cows. Ed Larsen, who owns a 1,200-cow dairy subcontract in Wisconsin, never gets upwardly before dawn to milk the cows, the fashion he did equally a male child. Rather, the cows are hooked upwards to electronic milkers. Computers measure each cow'southward output, and cows producing little milk are sent to a "infirmary wing" for handling. With the help of such technology, besides as ameliorate feed, today's dairy cows produce 50% more milk than did cows xx years ago. Fifty-fifty though the number of dairy cows in the United States in the terminal 20 years has fallen 17%, milk output has increased 25%.

Who benefits from technological progress? Consumers gain from lower prices and better service. Workers proceeds: Their greater power to produce goods and services translates into college wages. And firms gain: Lower production costs mean college profits. Of course, some people lose as technology advances. Some jobs are eliminated, and some firms find their services are no longer needed. One can contend nearly whether particular technological changes have improved our lives, but they have clearly made—and volition keep to make—them far different.

Sources: David Ballingrud, "Drilling in the Gulf: Life on Mars," St. petersburg Times (Florida), August v, 2001, p. 1A; Barbara Hagenbaugh, "Dairy Farms Evolve to Survive," U.s.a. Today, August 7, 2003, p. 1B; Del Jones and Barbara Hansen, "Special Report: A Who's Who of Productivity," USA Today, August 30, 2001, p. 1B; and Christopher Helman, Shell Shocked, Forbes Online, July 27, 2006.

Answers to Try It! Bug

An unemployed factory worker could exist put to piece of work; he or she counts equally labor.
A college professor is labor.
The library building on your campus is part of capital.
Yellowstone National Park. Those areas of the park left in their natural state are a natural resource. Facilities such every bit visitors' centers, roads, and campgrounds are capital.
An untapped eolith of natural gas is a natural resource. Once extracted and put in a storage tank, natural gas is capital.
The White House is upper-case letter.
The local power plant is uppercase.