Production of Goods and Services

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Questions and Answers

Explain the relationship between 'working capital' and 'circulating capital'.

They are the same thing. Working capital, also referred to as circulating capital, includes raw materials, components used in production, and stocks of finished goods waiting to be sold.

How might increased training and education affect a worker's contribution to a business, and what is this contribution called?

Training and education can increase a worker's value to a business. This value is known as their human capital.

Define 'production' in economic terms. What is the purpose of production?

Production is the process of converting resources into goods or services. The purpose of production is to satisfy the needs and wants of people.

Explain why economists consider 'enterprise' a factor of production.

Enterprise involves organizing the other factors of production (land, labor, and capital) to create goods or services. Entrepreneurs take the initiative and risk in combining these resources. Signup and view all the answers

Differentiate between renewable and non-renewable land resources, providing an example of each.

Renewable land resources are naturally replenished (e.g., forests, water). Non-renewable resources cannot be replaced once used (e.g., coal, oil). Signup and view all the answers

What are the four key divisions of LG Electronics, according to the case study?

The four key divisions are: home entertainment, mobile communications, home appliances, and vehicle components. Signup and view all the answers

Describe how a supermarket uses 'land' as a factor of production, according to the text.

A supermarket requires land to locate a store and to provide parking facilities for customers. Land also provides natural resources and fertile soil. Signup and view all the answers

In the context of factors of production, what does 'capital' refer to?

Capital refers to artificial resources made by labour, such as raw materials, components, and finished goods produced for sale. Signup and view all the answers

Explain why the quality of individual workers may vary. What contributes to this variation?

The quality of individual workers may vary because each worker possesses a unique set of abilities, characteristics, skills, knowledge, intelligence, and emotions. Signup and view all the answers

Considering the case study of LG Electronics, what are examples of resources that LG uses in its production activities?

Raw materials, components, buildings, energy, tools, equipment, machinery, and people. Signup and view all the answers

Flashcards

Factors of production

Resources used to produce goods and services; includes land, labour, capital, and enterprise.

Production

The process of converting resources into goods or services to satisfy needs and wants.

Land (as a factor of production)

A factor of production referring to natural resources used in production, including raw materials.

Labour (as a factor of production)

A factor of production referring to the workforce and human effort involved in production.

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Human Capital

The value of a worker's skills, knowledge, and attributes.

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Capital (as a factor of production)

A factor of production referring to manufactured resources used in production. It is made by labour.

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Working capital

Raw materials and components used up in production.

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Study Notes

Production is converting resources into goods or services to satisfy needs and wants.

Examples of Production:

A baker uses flour, yeast, salt and water to make bread.
A computer manufacturer uses people to assemble components into laptops.
A dentist extracts a tooth using surgical instruments.
A taxi driver uses a car to transport a family to the airport.
Businesses use resources like raw materials, components, buildings, energy, tools, equipment, machinery, and people.
Businesses try to use resources efficiently to keep costs down.

Case Study: LG Electronics:

LG Electronics is a South Korean electronics company employing over 80,000 people in over 100 countries.
Divisions include: home entertainment, mobile communications, home appliances, and vehicle components.
In 2015, revenue was US$48,800 million, slightly lower than the previous year.

Factors of Production:

Resources used to produce goods and services, including land, labor, capital, and enterprise.

Land:

Land is needed for businesses to locate or operate, i.e. supermarkets require land for a store and parking.
Land includes natural resources like coal, oil, iron ore, rainwater, forests, rivers, and fertile soil.
Non-renewable resources like coal, oil, diamonds and limestone cannot be replaced once used.
Renewable resources like fish, forests, and water are naturally replaced, but can disappear if over-exploited.

Labour:

Labour is the workforce, including manual, skilled workers and managers.
Workers possess different abilities, characteristics, skills, knowledge, intelligence, and emotions.
Human capital is the value of an individual worker to a business.
Training and education can increase human capital and worker productivity.

Capital:

Capital is an artificial resource made by labour.
Working (or circulating) capital includes raw materials, components, and finished goods stocks.
Retailers hold large stocks due to their specialization in selling finished goods.

Important Vocab:

Factors of production: Resources to produce goods and services (land, labour, capital, enterprise).
Production: Converting resources into goods or services.
Human capital: The value of the workforce or an individual worker.
Labour: People used in production.
Working capital (circulating capital): Resources used up in production, such as raw materials and components.

Did You Know?

Less than 7% of Brazil's Atlantic Forest remains.
It once covered 130 million hectares.
Expanding urban areas, agriculture, and industrial development threaten the endangered forest.