Factors of production are merely the resources necessary to produce output. Those factors of production are split in the following way:
|Factor of Production||Description|
|Physical resources||Tangible items that go into the production of whatever it is the business is making.|
|Human resources||Labor involved in making and distributing and selling that particular product or service.|
|Capital||Funds that the business uses to operate the business, and also to grow or expand the business.|
|Entrepreneurs||Special type of human resources. These are folks who help to expand and grow the business in creative ways. You could think of them like innovators if you like.|
|Information resources||Intangibles, like the patents and the ideas that the company has and owns that make the company who it is.|
Economy systems are how a society chooses to distribute goods, services, and resources. We're going to discuss two broad categories of economy systems:
The planned economy is where a central authority controls and chooses how to distribute resources for the production of goods and services.
Under a planned economy, we have two major types: communism and socialism.
Government owns all business.
It is the ultimate arbiter in how resources are distributed and how much gets produced. Introduced by a man named Carl Marx.
|In the modern world, we see communism active in places like North Korea and Cuba.|
Government owns select businesses or pieces of the economy.
Found predominately throughout Europe.
Under the National Health System in the United Kingdom, the government decides how health care is distributed among the populace.
Air France and Air India are the state or flag airlines for those particular countries. In those cases, the government decides how the airline is run, how many flights they have, and what routes they're going to fly.
2b. Market Economy
The next type of economy we're going to look at is the market economy. This is where supply and demand dictate how to distribute resources for the production of goods and services. You might have heard this type of economy referred to as capitalism.
In this market economy, private owners are responsible for and focused on the development of wealth. Those private owners and their consumers get to drive how the market works. They control what's produced through supply from the producers and the demand from the consumers.
2c. Mixed Market Economy
The U.S. is a mixed market economy, which is a combination of planned economy and market economy. Now, the U.S. operates differently than other countries around the world. It's more laissez-faire than places like China or France.
Now, an interesting thing about markets around the world currently is the privatization of state-owned businesses in places like Sweden, France, or India, like the Air India and Air France example from before. What you see now is an increased tendency to divest those businesses from the government and put them into private hands.
EXAMPLEThe Lufthansa Airlines from Germany was completely state-owned up until 1994, at which point the government divested itself from the airline, and now it is run as a private company.
Source: ADAPTED FROM SOPHIA INSTRUCTOR JAMES HOWARD