Production
Factors of Production
There are 3 main factors that affect the production of goods and services:
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Labour - Human effort for the production.
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Capital - A resource is capital if it the resource has been produced and the resource can be used to produce other goods and services. Money is not capital as it cannot produce other goods directly.
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Natural Resources - resources found naturally, that no labour has been used for. They are also used to produce goods and services.
Production Possibilities Curve
The PPC is a graph that shows the maximum possible combinations of two goods or services that can be produced using a fixed amount of resources.
Any given point on the curve represents an efficient allocation of resources, where the maximum possible output is achieved.
Points inside the curve indicate inefficient use of resources, while points outside the curve are unattainable with current resources.
Economic growth will shift the curve outward.
Economic Systems
Economic systems exist on a spectrum between market capitalist economies (where production and prices are largely determined by private individuals and businesses) and command socialist economies (where production and prices are largely controlled by the government).
Most countries operate mixed economies that fall somewhere along this spectrum.
Supply and Demand
Demand
Demand - quantity of a good or service that consumers are willing to purchase at a particular price during a particular period.
The Law of Demand states that there is an inverse relationship between price and quantity demanded by consumers.
A Change in Demand occurs when a variable (such as population or incomes) changes.
Supply
Supply - quantity of a good or service that producers are willing to sell at a particular price during a particular period.
The Law of Supply is opposite to the Law of Demand, stating there is a direct relationship between price and quantity demanded by consumers.
A Change in Supply follows the same principle as a Change in Demand.
Equilibrium
Equilibrium occurs when the quantity of a good or service demanded by consumers equals the quantity supplied by producers at a particular price.
A Surplus occurs when the quantity supplied > quantity demanded. This is everything above the equilibrium point.
Likewise, a Shortage is when the quantity demanded > quantity supplied. This is everything below the equilibrium point.
Changes in Supply and Demand shift the equilibrium point accordingly.
