4. Microeconomics V/s macroeconomics

The term microeconomics is derived from the greek word “mikros”, meaning “small” and the term “macros” meaning “large or aggregate economy as a whole.” Thus micro economics related to the study of individual economic units while the latter is a study

of the study of the economy as a whole.

5. Factor of production and factors and income

Factor of production

To bring order and manageability to any discussion about resources, economists classify them into four groups: labor, capital, land, and entrepreneurship.

Labor includes all human effort, both physical and mental, going into the production of goods and services.

Capital includes warehouses, machinery and equipment, computers, office furniture, and all other goods that are used in the production of goods and services.

Land includes all inputs into production that originate in nature and are not human-made – oil, iron ore and fertile soil to name a few.

Entrepreneurship is the function of organizing or bringing other factors together and taking the risk of success or failure.

Producers transform factors of production that they get from resource owners into goods and services to satisfy society’s wants and needs.

Factors and income

People who own resources provide them for production because they expect a return. Most often people expect to be paid, or to receive an income, there are different types of income:

Wages – income for labor,

Interest – income for capital,

Rent – income for land resources,

Profit – income for carrying out the entrepreneurial function.

6. Scarcity and modeling the scarcity

Scarcity means that there are not enough goods and services to satisfy the wants and needs of all individuals, families, and societies.

Modeling scarcity

Theories are explored within the context of a model that includes variables, assumptions, data and conclusions. We will develop a model to explore scarcity in an economy by examining the production of two goods using that economy’s resources. These two goods are: cell phones and garden tractors. In a short period of time will be used the following assumptions.

All resources, of factors of production are held constant.

All resources are fully employed.

The existing technology is held fixed, no new inventions or innovations occur.

The data for this model are provided in table 1, which lists some possible combinations of cell phones and garden tractors that could be produced in the economy given the assumptions made. This is a production possibilities table (gives the various amounts of two goods that an economy can produce with full employment and fixed resources and technology).

Cell phones (millions)	Garden tractors (hundred of thousands)
25	0
24	2
20	4
15	6
9	8
0	10

7. The bases of social production

Resources that are involved in manufacturing, called factors of production. In economic theory, are 4 factors of production: labor, land, capital, entrepreneurial ability.

1 Work is the process of spending a man his physical, intellectual and spiritual energy, aimed at achieving results. Work is characterized by intensity and performance. Intensity is the intensity of work, which is determined by the degree of labor expenditure per unit time. Performance is the impact of labor, measured by the number of products produced per unit time.

2 The term "land" includes all useful, is given by nature: earth, water and forest resources, mineral resources.

3 Capital - it is created by people the means of production and the accumulation of cash used in the production of goods and services.

4 Entrepreneurship- initiative, economic activity associated with the money income.

Production is carried out through the interaction of the three elements forming the means of production:

Human labor - purposeful activity of people to create material and spiritual goods and services.

The subject of labor - something that human labor is directed to create a product.

Instruments of labor - tools to help people affected by the object of labor.

An important indicator of the functioning of the social product is its efficiency, which is determined by the ratio of the results of production to its costs.