Unit 9 factors of production
Lead-in
Of the three factors of production in classical economics – land, labour, and capital – land may be the most difficult to define. In your opinion, does it refer just to the land itself?
Do you agree that understanding the factor of entrepreneurship is an important part of understanding the dynamics of the market economy? Why?
Key Vocabulary
Study the following vocabulary and do the task that follows.
1. create v |
создавать |
2. inputs n |
затраты на производство |
3. distinguishable from |
отличимый от |
4. natural resources |
природные ресурсы |
5. deposit n |
залежь, месторождение |
6. oil n |
нефть |
7. activity n |
деятельность |
8. demands n |
потребности |
9. undertake action |
предпринимать действие |
10. assist v |
помогать |
11. entrepreneurship n |
предпринимательство |
12. take place |
иметь место, случиться |
13. risk-bearing n |
принятие риска |
14. carry out v |
выполнять |
15. sole-proprietor n |
частный предприниматель |
16. share v |
делить |
Pre-reading Activities
1. Use key vocabulary to complete the sentences.
1. Macroeconomics studies the total output of a nation and the way the nation allocates its limited … of land, labor and capital.
a) resources b) oil c) activity
2. A customer's … are usually safety, quality, and value.
a) deposits b) resources c) demands
3. If you … ownership of your business with someone else, your business will not be a sole proprietorship.
a) assist b) share c) create
4. Inform me where the conference will … .
a) undertake action b) carry out c) take place
5. Management skills can be a separate factor of production called … .
a) inputs b) entrepreneurship c) risk-bearing
6. My secretary … in making the decision.
a) assisted b) shared c) carried out
Reading
Read the text and find out what factors of production are.
Economists have long recognized the three major factors that people use to create the things they want. Land, labor, and capital are "factors of production”, or “inputs”. Each factor plays an important role in the production of goods, and each factor is clearly distinguishable from the other two.
Land includes not only the site of production but natural resources above or below the soil. These are agricultural land, mineral deposits, forest, rivers, lakes, oil deposits, mountains, etc. Land is a passive factor in production. To make the gifts of nature satisfy our needs and desires, human beings must do something with natural resources. This activity is called labour.
Thus, labour is human effort – physical and mental – which is directed to the production of goods and services. But labour is not only a factor of production, it is also the reason why economic activity takes place. The people who take part in production are also consumers, the sum of whose individual demands provides a business person with the incentive to undertake action.
Capital is a man-made resource. Any product of labour and land which is reserved for use in the further production is capital.
Capital was created when people began to make simple tools to assist them in the production of food, the hunting of animals, and in the transportation of their possessions.
Entrepreneurship is also sometimes considered a factor of production. Land, labour, and capital will not produce anything. There must be some person or persons who will organize these three factors so that production takes place. Someone must take the decisions what, how, and where to produce. Whoever takes the decisions and the risks is known as an entrepreneur.
Organisation, management and risk-bearing – these are the entrepreneurial functions. In a one-person business, they are all carried out by the sole-proprietor. In a large company, the functions are shared.
Remember!
Comprehension Check
1. Use the best alternative to complete the statements.
1. The term "factors of production” means the same as …
a) natural resources;
b) inputs;
c) production of goods and services.
2. Land is … a) human effort;
b) man-made resource;
c) a passive factor.
3. Capital is … a) the reason why economic activity takes place;
b) any product of labour and land;
c) directed to the production of goods and services.
4. Entrepreneurship is …a) a one-person business;
b) organization and management;
c) the practice of starting a new business.
2. Are these statements True or False? Correct the false ones.
1. There are three factors of production.
2. Land is a man-made resource.
3. Labour can be both physical and mental.
4. Labour is a passive factor in production.
5. The entrepreneur must take the decisions what, how, and where to produce.
3. Answer the questions.
1. What are “inputs”?
2. Does land include only the site of production?
3. Why is land considered a passive factor of production?
4. Is labour only a factor of production?
5. How do capital and labor differ from land?
6. Who takes decisions and risks in the process of production?
7. What are the entrepreneurial functions?