Economics; I'll be using econs for short, is an interesting subject. So far, it is related to the subjects of Business Studies and Accounts in my Year 10 and 11. I really do hope I can cope with it.
With the first two lectures, I've understood the importance of the four factors of production: Land, Labour, Capital and Enterprise/Entrepreneurship.
The meaning behind these factors with my own words....
Land: It is the foundation of a business. Businesses would build their factories or buildings at a strategic place and most importantly, find their resources.
Labour: It is the workforce the business needs to produce the goods and services to their potential customers.
Capital: There are two types, fixed capital and working capital. Fixed capital are the equipments and stock that are used in the business to produce the goods and services AND will not be sold or turned into a final product. Working capital are the stock that are to be sold to the potential consumers; whether as raw materials or final product. Remember, capital is not only about the amount of money the business has.
Enterprise/Entrepreneurship: The backbone of a business, as they are the ones that takes the risk and combines the other three factors of production to make a profit for the business
However, one of the main problems faced by businesses around the world is scarcity, where resources are limited but demands are unlimited. Because of this, businesses will need to make the right choice into which product or service to produce; and by choosing, they will have to give up the other option.
Opportunity cost is the term used to describe the situation of choosing and at the same time loosing the other option.
After choosing on what goods or services to provide, the business will now need to choose the best method on how to do so. This will involve the cheapest but most efficient method for the business. Because of this, businesses are categorised as either labour intensive(the use of more labourers than machinery) or capital intensive(the use of more machinery than labourers).
From my opinion, there is no right or wrong choice, but rather which is the better or most efficient choice for the business. For example, a person decides to open a flower shop instead of opening a cafe because he/she knows how to tend to flowers and plants whereas he/she will need to learn more on how to cook in order to start up the cafe.
Even choosing between capital or labour intensive method is key to a business success as it could lower the cost of production. Using labourers and machinery has their pro's and con's. For example; it is cheap to hire labourers to work compared to buying high-tech machinery, however, labourers won't always be consistent on their work as motivation and personal feelings can affect performance. Whereas machines are made to be consistent.
All in all, a business need to fully understand the risks and opportunities they have at hand if they are to make the most efficient decision.
No comments:
Post a Comment