Ch1 - Chapter 1 Ten Principles Factors of Production(also...

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Chapter 1: Ten Principles Factors of Production (also called factors, resources or sometimes, inputs). What are the four factors of production? - land, labor, capital and entrepreneurship. Land refers to natural resources, atmospheric resources, environmental resources, flora, fauna, marine resources. Labor = labor services that you provide firms in exchange for wages. “Capital” in economics refers only to “physical capital” i.e. plant, equipment, machinery used to produce other goods. These capital goods are “human made”. So for example, a firm that produces commercial refrigerators is producing a capital good. This firm uses “land”, “labor”, “physical equipment” and “entrepreneurship”. Restaurants purchase commercial refrigerators to produce their goods – meals at a restaurant. Stocks, bonds, cash do not count as physical capital. “Entrepreneurship” is the act of bringing together the resources to produce goods and services, undertaking risk and conceiving the idea of production. Output: is also called “ Product ”. It refers to goods and services produced by producers using the factors of production and available technology. Output is sold in “output” markets or “product” markets. For instance, the term “gross domestic product” means the output of goods and services produced within a domestic economy during a given period. Cost: When economist use the term “cost”, we refer to “economic cost “ or “opportunity cost” which can be defined as follows: the cost of all resources used to produce a good or service. When a good is produced or an activity undertaken, something else is foregone. Hence the term “opportunity cost”. Opportunity Cost is made up of explicit cost and implicit costs. For example, the opportunity cost of seeing a movie includes the monetary cost (explicit cost) of admission plus the time cost (implicit cost; does not involve a monetary outlay) of going to the theater and attending the show. The time cost depends on what else you might do with that time; if it's staying home and watching TV, the time cost may be small, but if it's working an extra three hours at your job, the time cost is the money you could have earned.
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