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David Ricardo (1772-1823)
• British: Classical
• Successful business/financier
• Theories:
– Comparative Advantage
– Anti-protectionism
– Book: Principles of Political Economy and Taxation
• Value Theory
1
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Purpose of efficiency
• To improve….
–QUALITY
• To keep prices….
– LOW
• To eliminate…
–WASTE
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What are a company’s inputs?
• Capital invested in the business.
• Expenses
• Costs
• Specifics: – Labor, utilities, equipment, building, insurance,
marketing/advertising, rent, legal fees, taxes.
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What is the term for what a business produces?
• OUTPUT
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Total cost =
• Sum of all factors of production when making goods.
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AVERAGE COST
• Sum of all factors of production when making one unit of a good.
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Businesses may become MORE efficient in two basic ways
[INPUT/OUTPUT]:
• KEEP OUTPUT STEADY AND….
–REDUCE INPUTS
• KEEP INPUT STEADY AND…
–INCREASE OUTPUT
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SPECIALIZATION
• --What is the term for concentrating on the product or service that a business/individual does best?
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GEOGRAPHIC SPECIALIZATION
• When a certain region has an advantage is production.
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OVERSPECIALIZATION
• When a business goes to the extreme in specializing, which actually makes it less efficient.
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Elements of mass production
• DIVISION OF LABOR
• STANDARDIZED PARTS
• ASSEMBLY LINE
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PROTECTIONISM
• The theory that domestic manufactures need government protection against foreign competition.
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FREE TRADE
• Result of no restrictions or penalties upon the trading of goods.
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What are the typical expenses for a business?
• Labor -- wages and health insurance
• Property –
• Utilities
• Equipment
• Insurance
• Taxes, fees
• Cost of goods sold --