the four factors of productiion.ppt

8/14/2019 THE FOUR FACTORS OF PRODUCTIION.ppt

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THE FOUR F CTORS OF

PRODUCTIION

E ONOMI RESOUR ES



The things which are needed tocarry on the production of goods

and services are called economic

resources or factors of production.These resources are land, labor,

capital and entrepreneur. They are

the basic resources because theyconstitute the basic needs in

production.



Land

Refers to all natural resources,

which are given by and found in

nature and are therefore not man

made.



Land

is an economic good because it

is scarce and a price has to be paid

for it. Thus, people who own land and

offer it to others for their use, earn an

income called rent. The less the

supply of land available for man’s

use, the higher is the rent that has to

be paid for it.



LABOR

LABOR IS ANY FORM OF HUMAN

EFFORTS EXERTED IN THE PRODUCTION

OF GOODS AND SERVICES. LABORCOVERS A WIDE RANGE OF SKILLS

ABILITIES AND CHARACTERISTICS.

Is this an example of labor?



Labor supply is not available in any

amount without a price, anybody who

expends his efforts in the production ofgoods and services earns an income.

Wages which are the return on the use of

labor include salaries, commission, tips,and other forms of remuneration.

CAPITAL

Capital refers to man-made goodsused in the production of goods and

services. Capital does not only include

money, it also includes buildings,



A nation’s capital is dependent on itslevel of savings. Savings refers to the partof a person’s income which is not spent

on consumption. It therefore involves asacrifice because consumption has to begiven up for one to save. Capital is

therefore an economic good and theowner of capital earns income for its use.The income is called interest.

ENTREPRENEUR

The entrepreneur is the person whocombines the other economic resourcesfor use in production of goods and

services. He earns the income called



THE CIRCULAR FLOW OF

ECONOMIC ACTIVITY

Within the economy, basic

economic activities take place. These

include PRODUCTION, CONSUMPTION, EMPLOYMENT, AND INCOME

GENERATION.

They take place through theinterrelationship that is existing between

two economic units: the HOUSEHOLD

and the FIRM.



THE CIRCULAR FLOW OF ECONOMIC ACTIVITY

Goods and Services

Factors of Production

(Land, Labor, Capital,

entrepreneur)

Payments for Purchase of

Goods and Services

Factors of Payments

(rent, wage, interest, profit

Household Sector Business Sector



GOVERNMENT

PRODUCING

UNITSHOUSEHOLDS

FOREIGN COUNTRIES

O

PURCHASE OF GODS AND

SERVICESWAGES, RENTS,

INTERESTS

MONEY PAYMENTS FOR

IMPORTSMONEY PAYMENTS FOR

EXPORTS

GOODS AND SERVICES

INCOME PAYMENTS OF WAGES, RENTS AND

INTERESTS

ECONOMIC RESOURCES

PURCHASES OF GOODS AND SERVICES



A desire to change the level of economic

activity in the flow may lead to the

manipulation of a country’s inflows andoutflows. Outflows are, however, difficult to

control because they are dependent on

income. When income increases, we expect

savings, taxes, and imports to increase.

Inflows are easier to manipulate. The

proper use of policy enables the government

to encourage exports and investments and to

increase its expenditures when it desires to

expand the flow of economic activity.



The circular flow of economic activity

implies:

1. That goods, resources, and moneypayments will flow as long as households

continue to consume, and as long as firms

continue to produce.2. That since goods and resources flow in

exchange for payments, the rate of payments

flow will in the end be the same. Money is

the inducing factor, and the pillar of the price

system. Without it, there is no price system.



HOUSEHOLDS PRODUCING UNITS

ECONOMIC RESOURCES

PURCHASES OF GOODS

AND SERVICES

INCOME PAYMENTS OF

WAGES, RENTS AND

INTERESTS

GOODS AND SERVICES

IMPORT

STAXES

SAVING

S

FOREIGN

COUNTRIESGOVERNMENT

BANK

EXPORTS

EXPENDITUR

ESINVESTMENTS

THE OUTFLOWS AND THE INFLOWS IN THE CIRCULAR

FLOW



Three sets of policy may be adopted. That

which affects savings and investment is

called monetary policy. That which controlstaxes and government expenditures is fiscal

policy. And that which affects a country’s

exports and imports is its trade policy. Thegovernment applies the policies in

accordance with its goal. A policy may be

“easy” when the government’s aim is

expansion. A policy tends to be “tight” when

there is a need to restrict the circular flow by

making less funds available in the economy.



THE LAW OF SUPPLY AND DEMAND

The Law of Demand and Supply is one

of the most important laws in economics.

Philippine Economy operates strongly

under the forces of demand and supply.

While a study of the law is

microeconomics in approach, an

introduction to the law is included here tofamiliarize the student with how it works.



THE MARKET

A market is an interaction between

buyers and sellers for trading orexchange.

The most common type of market is

the goods market.

The labor market.

The stock market

DEMAND

The demand for a product is the

quantity of a good that buyers are willing

and able to buy.



THE MARKET

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THE STOCK MARKET

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THE LAW OF DEMAND

THE PRICE OF RICE QUANTITY

DEMANDEDP 1200 40 MILLIONP 1400 35 MILLION

P 1,200 40 MILLION CAVANSP 1,400 35 MILLION CAVANS

P 1,600 30 MILLION CAVANS



P 2,200 15 MILLION CAVANSP 2,400

WHAT IS THE

LAW OF DEMAND?

10 MILLION CAVANS



THE NON-PRICE DETERMINANTS OF

DEMAND

1. TASTES AND PREFERENCES

2. CONSUMERS INCOME

3. EXPECTATIONS OF FUTURE

PRICES AND INCOME

4. FAMILY SIZE/POPULATION

5. PRICES OF RELATED GOODS



THE LAW OF SUPPLY

THE PRICE OF RICE QUANTITYSUPPLIEDp 1,200 10 MILLION CAVANS

P 1, 400 15 MILLION CAVANS






WHAT IS THE

LAW OF

SUPPLY ?



NON-PRICE DETERMINANTS FOR SUPPLY

1.COST OF PRODUCTION

2.TECNOLOGY

3. AVAILABILITY OF RAW

MATERIALS

AND RESOURCES

4. WEATHER/CLIMATE5. NUMBER OF FIRMS




PRICE OF RICE/CAVAN QUANTITY DEMANDED QUANTITY SUPPLIED

P 1,200 40 MILLION 10 MILLION


P 1,600 30 MILLION 2O MILLIONP 1,800 25 MILLION 25 MILLION

P 2,OOO 20 MILLION 30 MILLION





MARKET EQUILIBRIUM

Equilibrium means state of

balance.

In the market, equilibrium is

attained where demand is equal to

supply.The price where demand and

supply are equal is the equilibrium

price. This is the only price that can




PRICE OF RICE/CAVAN QUANTITY DEMANDED QUANTITY SUPPLIED



P 1,600 30 MILLION 2O MILLION

P 1,800 25 MILLION = 25 MILLION

P 2,OOO 20 MILLION 30 MILLION





ELASTICITIES OF DEMAND AND SUPPLY

While we expect demand and supply tochanges in their determinants, goods

differ in the degree of their

responsiveness. Some are more

responsive, other less. In terms of

degrees of elasticity, demand and supply

may be describe as:

1.ELASTIC – demand or supply may

be described as elastic when a change in

determinant leads to a proportionately

greater in quantity of demand or supply.

S C



2. INELASTIC- Demand or supply are

described as inelastic when a change in a

determinant results in a proportionatelylesser change in the quantity of demand

or supply. The coefficient of elasticity is

less than 1.

3. UNITARY ELASTIC- Demand or supply

are unitary elastic when a change in a

determinant leads to a proportionately

equal change in the quantity of demandor supply. The coefficient of elasticity is

equal to 1.

the four factors of productiion.ppt

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