FACTORS OF PRODUCTION
The reason people cannot satisfy all their wants and needs1 is the scarcity of productive resources. These resources or factors of production2 are called land, labour, capital, and organization or entrepreneurship3. As an economic term land means the gifts of nature4 . The second factor of production is labour people with all their efforts and abilities. Unlike land, labour is a resource that may vary in size over time.. Land and labour are often called primary factors of production8.
The third factor of production is capital the tools, equipment and factories used in production of goods and services. Capital is unique in that, it is the result of production. When the three inputs5 land, labour and capital are present, production or the process of creating goods and services, can take place. Entrepreneurship, the managerial or organizational skills6 needed by most firms to produce goods and services, is the fourth factor of production.
ECONOMIC SYSTEMS
There are three major kinds of economic systems: traditional, command and market.
In a society with a traditional economy nearly all economic activity is the result of ritual and custom. Habit and custom also prescribe most social behaviour1. Individuals are not free to make decisions based on what they want or would like to have. Instead, their roles are defined. They know what goods and services will be produced, how to produce them, and how such goods and services will be distributed.
Other societies have a command economy one where a central authority makes most of the What, How and for Whom decisions.
Economic decisions are made at the top and people are expected to go along with1 choices made by their leaders. It means that major economic choices are made by the government. The major advantage of a command system is that it can change direction drastically in a relatively short time. The major disadvantage of the command system is that it does not always meet the wants and needs of individuals. In a market economy, the questions of What, How and for Whom to produce are made by individuals and firms acting in their own best interests. In economic term a market is an arrangement that allows buyers and sellers to come together to conduct transactions1. A market economy has several major advantages that traditional and command economies do not have. First, a market economy is flexible and can adjust to change over time. The second major advantage of the market economy is the freedom that exists for everyone involved. The third advantage of the market economy is the lack of significant government intervention. The final advantage of the market economy is the incredible variety6 of goods and services available to consumers.
DEMAND
In economic theory, demand means the amount of a commodity or service that economic units are willing to buy, or actually buy, at a given price.
Most people think of demand as being the desire for a certain economic product. That desire must be coupled with1 the ability and willingness to pay. In economics the relationship of demand and price is expressed by the Law of Demand. It says that the demand for an economic product varies inversely2 with its price. In other words, if prices are high the quantities demanded will be low. If prices are low the quantities demanded will be high.
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Elasticity of demand3 is a measure of the change in the quantity of
a good, in response to demand. The change in demand results from a change in price. Demand is inelastic when a good is regarded as a basic necessity4, but particularly elastic for non-essential commodities. The demand curve2 is the graphical representation of the demand function, i.e., of the relationship between price and demand.
Supply
In economic theory, the term supply denotes the amount of a commodity or service offered for sale at a given price. Business people think of demand as the consumption of goods and services. At the same time, they think of supply as their production. As they see it, supply means the quantity of a product supplied at the price prevailed at the time. If prices are high suppliers will offer greater quantities for sale. If prices are low, they will offer smaller quantities for sale.
Just as in the case of demand, supply is determined also by factors other than price, the most important being the cost of production and the period of time allowed to supply to adjust to a change in prices. remain constant.
The supply curve is the graphical representation of the supply function, i.e., of the relationship between price and supply. It shows us how many units of a particular commodity or service would be offered for sale at various prices, assuming that all other factors
Market Price
In economics, the term price denotes the consideration in cash (or in kind) for the transfer of something valuable, such as goods, services, currencies, securities, the use of money or property for a limited period of time, etc.
Prices play an important role in all economic markets. If there were no price system, it would be impossible to determine a value for any goods or services. In a market economy prices act as signals.
In economic markets, buyers and sellers have exactly the opposite hopes and intentions. The buyers come to the market larger to pay low prices. The sellers come to the market hoping for high prices.. For this reason, adjustment process must take place when the two sides come together. This process almost always leads to market equilibrium4 a situation where prices are relatively stable and there is neither a surplus5 nor a shortage6 in the market.
Market Structures
Market is any arrangement people have for trading with one another.Markets exist whenever and wherever people come together to buy and sell their goods and services. In modern economic systems consumers and producers exchange their goods and services in many competitive markets. The principal kinds of market structures are perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect ( or pure) Competition: Many Buyers and Sellers. The laws of supply and demand operate only under conditions of perfect competition. To the economistsa perfectly competitive market requires all of the following conditions:
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ü A large number of buyers and sellers all engaged in the purchase and sale of exactly the same commodity.
ü Identical commodity offered for sale.
ü Each buyer or seller has perfect knowledge of market prices and quantities.
ü There are no barriers to entry or exit.
Monopolistic Competition: Many Unique Products. Economists describe a market with many sellers providing similar but not identical products as monopolistic competition.
The process of creating uniqueness in products is known as product differentiation. So, monopolistic competition is characterized by:
ü a large number of firms producing similar but not identical products;
ü product differentiation;
ü some restrictions of information about market prices and quantities of goods;
ü a relatively easy entry to the market.
ü Oligopoly: A Few Sellers. Oligopoly is a term applied to markets dominated by a few (roughly three to five) large firms, each with substantial market control.
ü Oligopolies exist because it is difficult for competing firms to enter the market.
Monopoly: One Seller. A monopoly is defined as a single firm producing unique products for which there are no close substitutes. A monopolist has the market power or complete control over the market price.
BUSINESS ORGANIZATIONS
There are three major kinds of business organizations: the sole proprietorship2, the partnership3 and the corporation4.
The most common form of business organization is the sole proprietorship a business owned and run by one person. The main advantage of a sole proprietorship is that it is the easiest form of business to start and run.
Sole proprietors own all the profits of their enterprises and are free to make whatever changes they please. The major disadvantage of a sole proprietorship is the unlimited liability8 that each proprietor faces. A partnership is a business that is jointly owned by two or more people who have combined their talents and resources for the purpose of earning a profit. A business corporation is an institution established for the purpose of making profit. It is operated by individuals. People, who would like to form a corporation, must file for permission1 in the state where the business will have its headquarters. There are several advantages of the corporate form of ownership. The major advantage is the ability to acquire greater financial resources than other forms of ownership. The next advantage is that the corporation attracts a large amount of capital and can invest it in plants, equipment and research. Corporations face some major disadvantages. It is difficult and expensive to organize a corporation.
Money
People often say things like "he makes a lot of money". Despite this common understanding of the term, money is not income, and money is not wealth.
At different periods of time and in different parts of the world a variety of commodities served as money.
Nowadays the money people are most familiar with is currency that people use almost daily.
modern money should have the following characteristics:
Stability. The value of money should be more or less the same today as tomorrow.
Durability. Money has to have a reasonable life expectancy.
Portability. Modern money has to be small enough and light enough for people to carry.
Recognizability. Money should be easily recognized for what it is and hard to copy.
Uniformity. Equal denominations of money should have the same value.
Divisibility. One of the principal advantages of money is its ability to be divided into parts. In other words, it is easy to make change for a large denomination.
There are three functions of money: medium of exchange. a measure of value store of value. An extended period of rising prices is called inflation. A period in which prices are falling is called deflation.
Taxation
Taxes are the most important source of revenues for modern governments. Without taxes to finance its activities, governments could not exist. Governments use tax revenues to pay soldiers and police, to build roads and bridges, to control schools and hospitals, to provide food to the poor and medical care to the elderly.
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There are
| 1. Consumption tax:a tax on certain goods, especially goods that people buy for pleasure or enjoyment rather than those people buy regularly in order to live |
| 2. Excise tax (duty):a tax charged on certain goods and services produced and sold within the country, such as alcoholic drinks and tobacco products. |
| 3. Income tax:a tax on the income earned by individuals and corporations. |
| 4. Progressive tax:a tax that takes more money from people with higher incomes than from people with lower incomes. |
| 5. Property tax:a tax based on the value of property owned by the taxpayer. |
| 6. Proportional tax:a tax in which the amount of tax paid is proportional to the size of the taxable income. |
| 7. Regressive tax:a tax that has less effect on the rich than on the poor. |
| 8. Sales tax:a regressive tax added to the price of goods and services at the time they are sold. |
THE ECONOMY OF THE UNITED STATES OF AMERICA
1. The United States has a mixed economy/ 2. The federal government does play an important part in the national economy. It provides services and goods that the market cannot provide effectively, such as national defense, public goods and services, assistance programs for low-income families. 3. USA considered as the largest trading nation because its exporting and importing more goods and services then any other countery. 4. US economy be divided into fourth sectors: a natural resources sectors, manufacturing and energy sectors, services and commerce sectors, information and technology sectors. 5. The natural resources sectors provides goods thet come directly from natural resources:agriculture, forestly, fishing, and maning. Services and commerce sectors Comprises financial services, wholesaling and retaling, government services, transportation, entertainment, tourism. The information and technology sectors deals with recording, processing, and transmission of information, and includes the communication industry. 6. Manufacturing remains a key component of the US economy. 7. The leading categories of the US manufactured goods are chemical, industrial machinery, electronic equipment, processed foods and transportation equipment. 8. The largest sector of the US economy in terms of output and employment is the services and commerce sectors. 9. the Internet begin in the 1960 as a small network of academic and government computers primarily involved in research for the US military. 10. The communications systems in the US are among the most developed in the world. Most communication media in the USA are privately owned and operate independently of government control. 11. the country's major mineral resources are phosphate, gold, silver, iron ore, copper, lead, natural gas and coul.
