FACTOR OF PRODUCTION

Factor of production are the basic resources used in production process in order to produce economic goods and services. Economists have classified the factors of production into four groups namely :

i. Land
This is free gift natures either on the surface or in the earth. The value based on quality and           location. Return to the land is fees. Examples are land, air, water, forest and others.

ii. Labour
The services contributed by people in the production process that involve both mental and physical effort. That's include skill and unskillful. Return to the labour is wages. Examples are lectures, construction workers and others.

iii. Capital
Human made resources which are used in the production process to produce other goods and services. Return to the capital is interest. Examples are machinery, raw material, buildings, tools and others.

iv. Entrepreneurship
- Its human are managers their firm to produce their goods and services.
- The entrepreneur must be risks and organize the others factors of production.





PRODUCTION POSSIBILITIES CURVE ( PPC )

Show the max combination on goods that can be produced given the available factors of production and the available factors of production and the available technology of production.


3 assumptions to build the PPC
i. There are only two goods will be produce ( food and cloth )
ii. The production of technology is available and not changes
iii. Limited factor of production
iv. Economy has achieved level of full employment.


1. Attainable and efficient combination.

Combination A, B, and C ( attainable )

Where resources are fully utilized and the country is said to be at full employment level. The firm is also to be efficient ( no waste in the use of resources )


2. Attainable and not efficient

Combination D ( inside PPC )
-waste resources.
-economy is not efficient


3. Not Attainable

Combination E ( outside PPC )
- not enough resources
- no new technology


4. Extreme Combination

'


Combination E and A ( point at 0 )
- Use 1 firm to produce only 1 goods.

CHANGE IN PRODUCTION POSSIBILITIES CURVE

Each combination of production possibilities curve can increase or decrease due to several factors.
Increased or Decreased in production possibilities curve can occur for one side product only or both. There are many factors that cause the shift of production possibilities curve.


a. Increasing in population

Manufacturers will increase the volume of goods when there is an increase in the population. Production of both goods will increase. This causes production possibilities curve to shift to the right.


b. Technology progress.

                        A                                                    B

factor can shift the PPC outward through an improvement in technology. It allows more efficient production using existing economics resources. Based on diagram B above, if the improvement of production ( technology progress ) happened only in producing Necessities, the economy will produce more necessities compare to luxery goods. So, the PPC will shifted outward towards the horizontal axis.