Entrepreneurship

The fourth factor of production is entrepreneurship. This refers to the ability of individuals to start new businesses, introduce new products and processes, and improve management techniques. Entrepreneurship involves initiative and willingness to take risks in order to reap profits.

Entrepreneurs must also incur the costs of failed efforts. About 30 percent of new business enterprises fail. Of the 70 percent that do survive, only a few become wildly successful.

Technology

Some economists add technology to the list of factors of production. Technology includes any use of land, labor, and capital that produces goods and services more efficiently. For example, computerized word processing was a technological advance over the typewriter. Today, the word technology is commonly used to describe new products and new methods of producing goods and services.

Effect on Income and Wealth

How much of each of the factors of production an individual has determines his or her wealth. The more land and capital you have, the richer you will probably be. The greater your entrepreneurial skills, the more income you might earn. In other words, the distribution of factors of production affects a nation’s income distribution—what percentage of Americans are rich and what percentage are poor. The same holds true across nations as well. Nations with many natural resources at their disposal, for example, tend to be wealthier than nations with few natural resources.

• factors of production: resources of land, labor, capital, and entrepreneurship used to produce goods and services

• land: natural resources and surface land and water

• labor: human effort directed toward producing goods and services

• goods: tangible objects that can satisfy people’s wants or needs

• services: actions that can satisfy people’s wants or needs

• capital: previously manufactured goods used to make other goods and services

• productivity: the amount of output (goods and services) that results from a given level of inputs (land, labor, capital, and entrepreneurship)

• entrepreneurship: when individuals take risks to develop new products and start new businesses in order to make profits

• technology: the use of science to develop new products and new methods for producing and distributing goods and services

Trade-Offs

A s you learned in Section 1, scarcity forces people to make choices about how they will use their resources. In this section, you’ll learn that the effects of these choices may be far-reaching and long-lasting. For example, one day you may choose to either go to work for a company or open your own business. Such a decision would affect many aspects of your life, including how much you earn and how you manage your time.

Trade-Offs

Economic decisions always involve trade-offs that have costs.

Economics & You

Think about the last time you spent an hour watching television. Were there other ways you could have spent your time? Read on to learn about c one way means giving up other alternatives.

The economic choices people make involve exchanging one good or service for another. If you choose to buy an iPod, you are exchanging your income for the right to own the iPod. Exchanging one thing for another is called a trade-off. Individuals, families, businesses, and societies are forced to make trade-offs every time they use their resources in one wayand not another.