Factors of Production

06/10/2009

The factors of production are 4 different factors that must be evident in any productive organisation. These are:

Land, Labour, Capital, Enterprise

Economic Models

• The economy is extremely complex
• In order to understand it, ecoonmists use models
• Models use simplifying assumtions
• A good set of assuptions captures important aspects of the economy
• A bad set of assumptions can produce misleading results
• Models are tested against data
• Limited scope for experiments
• The economy changes over time

Often used assumptions

• Economists often assume in their modfels that people are rational
  • People make the best choice of action in any scenario
  • So a model that solves for the best choice of action predicts behaviour if people are rational

Production Possibility Frontire

The PPF shows the maximum amount of goods that can be produced by an economy with a given amount of resources.

~ by maxmakeblog on October 6, 2009.