Monday 18 January 2010

Economics -- Factors of production II

Entrepreneurship (human resources) is the human effort provided by an entrepreneur who is a owner of business. The factor return/income is called profit. They’re responsible to organize, manage and make (all major) decisions. For example, they raise funds, decide what to produce, how to produce, price and quality of products, etc. They’re responsible for bearing all risks of production, and unlike the passive roles in production, their income are not stipulated by contract so it’s return is uncertain. Capital (producer goods) is man-made resources used by producers to help production. The factor income is called interest. They can be money or machines, etc. Note that some of them will be used up during production (e.g. fuels, money) but some of them can be used repeatedly (e.g. machines). Capital that can be used repeatedly is called fixed capital. Features of capital: 1) They can replace other factors like labour since they’re man-made. Cost can be reduced or improve the productivity. E.g., ATM instead of tellers is cheaper and faster. 2) They can be forgone for more future consumption since when resources are used to produce to purchase capital, it can’t be consumed now, but when it’s used in production, increase in capital means the increase in productivity. Then future consumption of consumer goods can be increased in return. Change in capital stock (refers to capital formation – capital depreciation) 1) Capital depreciation refers to the reduction of the value of capital caused by capital consumption (wear/tear) or capital obsolescence (out-dated) 2) Capital formation refers to the production or purchase of capital or investment. The two purpose are replace the depreciated capital to maintain productivity or to increase the production productivity in order to expand the production capacity. The resulting net increase in capital is called capital accumulation. Land refers to the natural resources used in production. They must not be processed (human effort is not involves). The factor income is called rent. E.g., oil deposits and wildland. Note that land that being processed is capital, but not land. (e.g. land created by reclamation) 1) It’s totally a gift from nature and no cost is (forgone) needed for its formation. 2) Supply of land can’t be increased artificially but can be increased by natural forces. The current situation of Hong Kong Hong Kong is well-known for its hard-working, adaptable and well-educated workforce, and the high efficiency and enterprising entrepreneurs. It’s also well-known for the excellent man-made resources such as the transportation system and communication infrastructure as an international financial centre. However Hong Kong is so small and it’s lack of natural resources. But it still has one of the best deep-water ports (Victoria Harbor) in the world.

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