Basic Question of resource allocation

• What? : What to produce with the limited resources and the peoples
demand. Does society need and demands more biscuits or bread?
• How? : Are jogging shoes better with leather or nylon? Handmade
goods or machine made goods? Handmade generates less waste,
better quality, but using machines is faster and can produce more. You
must decide how to allocate the resources.
• Whom? : Who receives the goods and services you produce? For
whom are you producing? Expensive for richer, skirts for girls etc.
 Factors of
production

Land Labor Capital Entrepreneurship

• Land: 1st Factor of production. Natural resource. Natural resources used
in production. Includes anything that comes from land: lake, river,
ground, forest, mineral etc.
Reward: Income that is generated from owing the land. Rent
• Labor: 2nd Factor or production. Human resource. Countries working
population. Includes labor, employees etc. If you have ever been paid
for doing anything then you were a labor resource once. Eg: Waiter,
painter, doctor etc.
Reward: WAGE and SALARY earned
• Capital: 3rd. Man-made things for production. Machinery, tools,
buildings etc used for production. Eg: hammer, computer, delivery van.
Reward: RATE OF RETURN. INTEREST. Money earned by using the tools
and machines.
• Entrepreneurship: Entrepreneur are innovators, who find new ways to
produce things, who brings a new goods to the market. Eg: Bill Gates,
Henry Ford etc.
There are 2 functions of a entrepreneur:
1. They are the person who combines the other 3 factors of
production together.
2. Risk takers: While making new innovations. There is a 50/50 chance
of it being successful or a failure. So, its their job to take a risk. If it’s
a loss they will have to bear it, if its profit they will get it.
Reward: Profits that are made
HUMAN CAPITAL PHYSICAL CAPITAL
1. Consists of the skill and knowledge of the human 1. Includes all the physical tools and machineries used
beings for production

2. Intangible ( cannot be touched) 2. Tangible

3. Its value does not decrease with time. It ages but 3. Its value gets depreciated. Due to constant use, it
with more education and training, its value can be tents to get damaged, have wear and tear. Hence the
increased. value decreases.

4. Less mobility ( movement). 4. More mobile. (Can be taken anywhere)

5. Labor, employees 5. Man-made goods like tools etc

Specialization
• 1 way of producing good and services.
• Situation where individuals/firms/nation concentrate on producing
some goods rather than many.
• Focusing in few particular things than many.
• It allows people to concentrate on what they are best at.
Division of labor
• The separation of a work into small tasks, with each task performed
by a specialized person or group.
• The process of production is divided into simple tasks and each part is
taken by different worker who is specialized in the production of that
specific part.
• Previously production was not done in big scale. So, 1 person could
complete it. But now production happens in big scale. So, its hard for
1 person to complete everything.
• Now, workers are put into different tasks according to their capacity
and ability.
• Eg: Cloth factory. 1 cuts, other stitches, other buttons, next packs etc.
ADVANTAGE
• Cheaper, Quicker
• More production (as it is quicker)
• More job opportunity
• It allows worker to be specialized. Which improves the quality.

DISADVANTAGE
• Becomes boring. Monotonous
• The company will have to train more people. More people to pay. It
gets a little expensive.