Minggu, 07 Oktober 2012

THE FACTORS OF PRODUCTION

The goal rof ecoomic system is to producte the goods and services that will satisfy human wants. Some people believe that production simply means producing radois, cars, clothes, furniture, and other products. This belief is true as far as it goes. But production defined in a broader sense is the process of transferring inputs from human and physical resources into outputs wanted by consumers. These outputs may be either goods or services production involves four essential elements, which are called the factors of production :
1. Natural resources
2. Labor
3. Capital
4. Entrepreneurship
The figure below suggests that an interlocking relationship exists among these elements. This becomes more obvious when you think about each of the elements.

Land is one resource that is essential to production. its most important characteristic is that it is a fixed resource. In addition to serving as a location for equipment and buildings, it is capable of producing crops of all kinds and the minerals used in production. From an economic standpoint the reward for the use of land is rent, a monetary return derived from putting it to profitable use.

Labor is the second factor of production human effort directed toward the creation of goods and services. Unskilled labor is very available, but highly skilled labor is often scarce in areas where it is most needed. Even during times of high employment there are shortages of certain types of skilled labor.

The reward for labor is wages. If labor forces the selling price of the product up and the price becomes too high, the demand for that product will decline. Changes in the demand for the finished product will inevitably cause changes in employers demand for labor. Labor is paid two types of income : wages and fringe benefits. The amount of wages a worker receives constitutes his or her money income. The value of that wage in term of its purchasing power is called real income.

Capital is another major factor of production. The use of the term capital is not restricted to money invested in a business enterprise. Business capital includes all the additions of value that require money to purchase or build - land. buildings, equipment - and that are used in production. Mac

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