The Economic Framework of Business

Factors of Production PRODUCT C A P I T A L E N T E R P R I S E L A N D L A B O U R Capital , available for invest- ment in new machines,etc. Land , used for agriculture, housing development and for providing natural resources. Enterprise , referring to the people who are willing to take the risk of setting up in business. Labour , the number of persons available and willing to work.

Scarcity and Choice unlimited limited Wants Resources Choices Conflict

Key Questions for Society What to produce ? price mechanism government

price mechanism

government

Key Questions for Society What to produce ? How to produce ? buy machines or hire employees

buy machines or

hire employees

Key Questions for Society What to produce ? How to produce ? Where to produce ? availability of inexpensive building land suitably skilled workforce government‘s regional policy

availability of inexpensive building land

suitably skilled workforce

government‘s regional policy

Specialisation and Exchange Lack of coincidence of wants Indivisibility Valuation Problems

Functions of Money Medium of exchange Measure of value Store of value $500.-

Medium of exchange

Measure of value

Store of value

Specialisation Former times one single person

Specialisation Today many persons

Specialisation Reduced unit costs Use of specialist equipment Employees become specialised Lower job satisfaction Sensitive against industrial action Problems with unemployed workers Advantages Disadvantages

Reduced unit costs

Use of specialist equipment

Employees become specialised

Lower job satisfaction

Sensitive against industrial action

Problems with unemployed workers

Interdependence through Specialisation Firms Countries People

Economic Systems Free Market System Mixed Economy Planned System

Free Market System X X X X Price mechanism Resources are owned by individuals ( 5 price, 30000 quantity ) ( 1 price, 5000 quantity ) ( 5 price, 5000 quantity ) ( 1 price, 30000 quantity ) Demand Supply

Advantages Free Market System Incentive Choice Competition

Disadvantages Unequal distribution of wealth Public services Profit motive Hardship Wasted or reduced competition

Economic Systems Free Market System Mixed Economy Planned System

Advantages Use of resources Large-scale production Public services Basic services

Disadvantages Lack of choice Little incentive Centralised control

Economic Systems Free Market System Mixed Economy Planned System

Mixed Economy Advantages Disadvantages Necessary services Incentive Competition Large monopolies Bureaucracy

Types of Production

PRODUCER Insurance Banking Transport Advertising Warehousing Export services Communication services

Types of Markets Consumer markets Industrial markets capital goods single-use consumer goods services consumer durables industrial services

Test Questions The four factors of production are ... Explain ‘opportunity cost’ and give one example of its relevance to business. Distinguish between Direct and Indirect production. All firms specialise to some extent. What benefits do they gain from this ? What is the main difference between a free market economic system and a planned system ? Give three advantages found in a) the free market system; b) the planned system. Distinguish between primary, secondary and tertiary forms of production. Classify the following occupations as primary, secondary or tertiary: a) shopkeeper b) delivery van driver c) bricklayer d) car body welder e) forester f) seaman g) banker h) miner A ‘market’ is a place where … and … are in contact with each other to determine a price.

The four factors of production are ...

Explain ‘opportunity cost’ and give one example of its relevance to business.

Distinguish between Direct and Indirect production.

All firms specialise to some extent. What benefits do they gain from this ?

What is the main difference between a free market economic system and a planned system ?

Give three advantages found in a) the free market system; b) the planned system.

Distinguish between primary, secondary and tertiary forms of production.

Classify the following occupations as primary, secondary or tertiary: a) shopkeeper b) delivery van driver c) bricklayer d) car body welder e) forester f) seaman g) banker h) miner

A ‘market’ is a place where … and … are in contact with each other to determine a price.

All information taken from : Letts Study Guide GCSE, Floyd,David;Business Studies;Letts Educational; London 1997 ISBN: 1 85758 576 3 Don‘t do that ! Always have a look at the bright side of life !