Factors Of Production SAQ

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Define land as a factor of production

Land is anything provided by nature that is used to produce goods and services, such as oil, timber, gas, and water.

What is economic rent?

Economic rent is the return on any factor of production in excess of its supply price.

Why is the supply of land considered perfectly inelastic?

The supply of land is considered perfectly inelastic because it is fixed and finite, meaning its supply curve is vertical.

Explain derived demand in the context of factor markets.

Derived demand refers to the demand for a factor of production not for its own sake but for its use in producing goods or services that are desired by consumers. Signup and view all the answers

Give an example of a non-specific factor of production.

Land is an example of a non-specific factor of production as it has many uses. Signup and view all the answers

What is the minimum payment necessary to bring a factor of production into use called?

The minimum payment necessary to bring a factor of production into use is called the supply price of the factor of production. Signup and view all the answers

Define capital as a factor of production.

Capital is anything human-made that is used to produce goods and services, such as factories, machinery, and computers. Signup and view all the answers

What is capital deepening?

Capital deepening occurs when an increase in labour and capital results in an increase in the ratio of capital to labour, such as when a factory owner hires one extra worker and invests in two extra machines. Signup and view all the answers

Describe capital widening.

Capital widening occurs when an increase in labour and capital does not change the ratio of capital to labour, such as when a factory owner hires one extra worker and invests in one extra machine. Signup and view all the answers

What is the Marginal Efficiency of Capital ?

The Marginal Efficiency of Capital is the extra profit generated by employing one extra unit of capital, calculated as the extra revenue generated minus its cost. Signup and view all the answers

List factors that determine the size of the Marginal Efficiency of Capital

Factors include the price of the output, demand for the output, cost of the output, rate of interest, and wear and tear. Signup and view all the answers

Define an entrepreneur in the context of factors of production.

An entrepreneur is a person who takes risks and initiatives to make a profit by organizing the other three factors of production to produce goods or services. Signup and view all the answers

Why can the returns of enterprise be negative?

The returns of enterprise can be negative because entrepreneurs take risks and their earnings vary in size, sometimes leading to losses. Signup and view all the answers

What are residual earnings?

Residual earnings are the earnings of entrepreneurs, paid after all other factors of production have been compensated. Signup and view all the answers

Name one role of profits in the economy.

Profits encourage risk-taking among entrepreneurs. Signup and view all the answers

How do profits contribute to government revenue?

Profits are taxed, which provides a source of revenue for the government. Signup and view all the answers

What is investment in economic terms?

Investment refers to capital formation or the production of capital goods. Signup and view all the answers

Describe the role of profits in encouraging efficiency.

Profits encourage firms to be efficient by motivating them to reduce costs and improve productivity to maximize returns. Signup and view all the answers

How does capital deepening affect productivity?

Capital deepening increases productivity by enhancing the ratio of capital to labour, leading to more efficient production processes. Signup and view all the answers

What is the primary characteristic of land that distinguishes it from other factors of production?

The primary characteristic of land is that its supply is fixed and it generates economic rent. Signup and view all the answers

Explain the concept of a factor market.

A factor market is where firms acquire the factors of production needed to provide goods and services, with demand derived from the need to produce these goods and services. Signup and view all the answers

How does the supply of land influence its price?

Since the supply of land is fixed, its price is primarily influenced by demand rather than supply. Signup and view all the answers

What is meant by the term 'factor of production'?

A factor of production is an input used in the production of goods or services, including land, labour, capital, and enterprise. Signup and view all the answers

Why is land considered a non-specific factor of production?

Land is considered a non-specific factor because it can be used for multiple purposes, such as agriculture, construction, or mining. Signup and view all the answers