Economics

Economics

Q1. Production - factors and costs

Factors of production

Factors of production are the resources of LAND, LABOUR, CAPITAL and ENTERPRISE used to produce goods and services.

Land

Land is the natural resources on the planet. It includes space on the ground, hills, seas, oceans, air etc

Labour

Labour is the human input (workers, managers etc) into the production process. The UK has about 58 million people of which approximately 35 million are of working age. Each individual has a different level of skills, qualities and qualifications. This is known as the HUMAN CAPITAL(Stiglitz 2000).

Capital

Man made physical goods used to produce other goods and services.Examples include machines, computers, tools, factories, roads etc.Increases in the level of capital are called INVESTMENT

Enterprise

The entrepreneur provides the initial ideas. They risk their own resources in business ventures. They also organise the other 3 factors of production.

Fixed Costs And Variable Costs

Fixed costs - costs that stay the same over a relatively broad range of sales volume or production output.

Variable costs - can increase and decrease due to changes in sales or production level. Variable costs fluctuate in proportion with changes in production.

Q2. Demand and supply

With the scheme having increased demand for car sales (see Section 4 for more) it appeared that the original £300 million worth of Government funding would run out before the February 2010 deadline. This led to calls from many organisations, particularly from within the automotive industry, for the Government to extend the scheme. 14 There were fears from these groups that once the initiative had expired, car sales and car production would be hit by underlying weak demand (partly because some consumers have brought forward their plans to purchase a new car in order to take advantage of the discount) and the planned increase in the VAT rate from 15% to 17.5% on 1 January 2010. 

Q 3. Opportunity costs

All costs in economics are said to be opportunity costs because anytime a resource is used for any purpose, it implies that some other good cannot be produced with that quantity of the resource, that some other resource is not used for the given production instead, and that revenues from other production are foregone. Thus, costs are either explicit cost for the resource used or implicit costs from alternative use of the resource(Barr 2004). 

The scheme offered drivers of cars at least 10 years old £2,000 off the price of a new vehicle with half of the money is paid by the government and half by the carmaker in question. Over the course of the scheme is estimated that the scrappage initiative has been responsible for about a fifth of all new UK car registrations.

Q4. Elasticities

Price elasticity of demand (PED, Ed) is an elasticity used in economics to show the responsiveness of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in demand one might expect after a one percent change in price. It was devised by Alfred Marshall.

Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ...