S4 CH3

A. Production
 = turning input (resources) → output (G& S)
 = activity → use resources create value
Remark: consumption = use G/S satisfy wants directly

B. Types of production
1) primary production:
 = production direct natural resources extraction
 person engaged in = primary producer

2) secondary production:
 = production turning raw material → semi-finished / finished product
 person engaged in = secondary producer

3) tertiary production:
 = production provide services
 person engaged in = tertiary producer

C. Interdependence of the 3 type of production

 primary production provide food& raw material
→ secondary& tertiary production

 secondary production provide finished / capital good

→ primary& tertiary production

 tertiary production provide service

→ required by primary& secondary producer

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D. Output classification
 classification by form:
 goods = tangible output
 service = intangible output

 classification by use:
 producer good (=capital good) = good used produce G& S in production
 consumer good = good used satisfy consumer wants directly

 classification by rivalry& excludability:

 rival =
 consumer consumption ↓ qty available to others
 not be consumed by different ppl concurrently

 excludable = consumption prevent others enjoy it (=exclude other consume good)

 private good = good rival& excludable in consumption

 public good
 = good non-rival& non-excludable in consumption
 = cost serve extra person = 0
 ≠ all good produce / provide by public enterprise / govt.
public facilities not necessarily public goods

Remark:
1) difference between public& private good → whether good can used by different ppl concurrently
2) real world no absolute non-rival / non-excludable good → may classified as impure public good

E. Factors of production
 = resources used for production
1) human resources: labor (wage) + entrepreneurship (profit)
2) natural resources: land (rent)
3) man made resources capital (interest)

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F. Land
 = natural resource used in production
 gift of natural
 supply relatively fixed but not unchanged
→ qty not change by human effort but by natural envt.
 no (opportunity) cost produce land ∵ free gift of nature
 occupational mobile → can different uses ∴ have cost using land

G. Capital
 = man made resources used for production
 ∵ man made → have production cost

1) capital formation:
 = production of capital good
 ∵ capital good used produce other good
→ capital formation ↑ productivity& ↑ future income
∴ ↑ capital qty
 = give up present consumption for future consumption
 capital formation negatively related IR
IR ↑ → firm give up interest / pay ↑ interest
∵ investment cost ↑ → ↓ firm invest capital good incentive

2) capital consumption (=depreciation):

= ↓ capital value ∵ wear + tear after use

3) capital accumulation:
capital formation rate > capital consumption rate → ↑ capital good

 Remark:
 capital = man made = have production cost
 land = from nature = no production cost

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H. labor
 = human effort (mental + physical) in production
 return = wage

I. Entrepreneurship
 = human effort (make decision + bear business risk)

 entrepreneur =
 person own business
 preform entrepreneurship function

 return = profit

 function:
1) ∵ entrepreneur = owner of unit of production → bear production risk
good business → get profit (vice versa = suffer lost)
2) entrepreneur responsible organize + manage all factors of production
3) entrepreneur responsible making major decision

 Remark: difference between labor& entrepreneur = entrepreneur bear business risk ; labor not