16 September- Lecture 2
Last week’s main points:
Definition of “business”
The “profit” motive
Revenues or sales
Costs or expenses
Profit and Loss
This Week’s Main Points
Factors of Production
Supply and Demand
Degrees of Competition
Factors of Production
There are basic building blocks used to produce anything.
We call those basic building blocks:
“Factors of production”
raw materials found in the ground, grown from the earth, or harvested from nature.
Examples: coal, wheat, water, wood
> the world’s most profitable companies pump oil from the ground
Businesses need people.
Labour intensive business: Those businesses that need a LOT of people as workers
Ex. Walmart: employs hundreds of thousands of people
money, or the machines and technologies that money can buy.
e.g. computers, hammers, tractors, phones, software
Entrepreneurs: People who assemble and organize the other factors of production.
Fifth factor of production (in the textbook): collection of information/data (The prof
disagrees, because data is just a bunch of numbers. Information in and of itself is
completely useless- you need smart labour and smart people to analyze that
Google is such a successful company because it takes information and its
clever information, organize it, analyze it, and re-package it and sell it to
FB has lots of irrelevant information
Raw data is irrelevant
Packaged and analyzed data is useful
Is having any one factor of production more important than the other?
The way different countries answer basic economic questions:
who should own the factors of product’n?
who controls the factors of productn?
Who decides what should be produced?
Different countries answer these
government or individuals in control
in control (they sent all these soldiers to work)
own most factors own most factors
control most factors control most factors
make most decisions make most decisions
Command Economies - 2 Types
[Also called Planned economies]
Business men are short-sighted
Only interested in their own profits
Businesses can’t see the long view and bigger picture of society’s needs and wants,
therefore, in these economies, the brightest people go to the best universities and
get the best degrees. If you give the smartest and best people jobs with the centre,
they can sit there
Communist Economies: Government owns/controls all the factors of
production makes 100% of economic decisions.
Examples: very few, probably North Korea
Government owns/controls majority of the factors
of production, including principal industries, makes
most of economic decisions.
Example: Cuba -> taxi cabs are privately owned, but just about everything else is
controlled by the government
over the last 4 years, under Castro, the government is moving back from
controlling businesses and more and more types of private industries are
allowed, so it’s moving away from communism, through socialism, to
somewhere in the middle (where the vast majority of the big important
countries of the planet are)