Productive factors and technology

- Land
- Workforce
- Capital funds
Technology is the combination of different productive factors with the goal of
producing goods and services.

Production Possibility Frontier PPF

Production–possibility frontier (PPF) is a curve which shows various combinations of the
amounts of two goods which can be produced within the given resources and technology. It
is a graphical representation showing all the possible options of output for two products.

Related concepts:
- Resource scarcity
- Opportunity cost
- Potential production

Productivity
Productivity is the relationship between the goods and the services produced and the factors
used to produce them.

Economic growth
Economic Growth occurs when in a determined period of time the output of goods and
services obtained by a society gains value.There are two ways of achieving this:
- Improving productivity
- Increasing the amount of used production factors

Economic systems
An Economic system is a means by which societies or governments organize and distribute
available resources, services, and goods across a geographic region or country. Economic
systems regulate the factors of production,including land, capital, labor.

Capitalism → Companies produce the goods and services that are demanded by families
(consumers) while it is profitable for them. The quantity produced will be defined
by the price level that consumers are willing to pay.
Companies choose the production factors and the technology to be used and they will
combine them in a profitable way.
1. Economic cycle instability
2. Unequal income distribution
3. Pollution
4. Some enterprise’s abuse
5. Non profitable goods are scarce

Communism → In a Centralized economic system, The Government is the main actor in the
economy and the main decisions are made by its members. The public sector is the one that
makes the decisions in order to guarantee income and equality for its citizens, including
decisions about where to work, education and health services.
 COMMUNISM CAPITALISM MIXED

- Decisions are - Private property - Offer public services

centralized - Free market - Income / Wealth
- Poor motivation redistribution via
- Market value of taxes
products is unknown - Fight the economic
(cannot distinguish instability and cycles
between successful - Public companies
and unsuccessful - Establish laws and
companies because regulations to
prices are imposed) regulate the private
- Basic needs covered sector
Business
A Business is a combination of natural-resources, workforce and capital funds, organized in
a certain way to produce and distribute the goods and services demanded by the society
while obtaining a profit out of it.

Production process
Inputs:
- Production factors
- Items produced by other companies
Business:
- Transformation used by technology
Outputs:
- Goods
- Services

Economic view of the production process

The goal of the production process under this view, is to satisfy families ́needs, thus, the
basic consumption amounts. It is seen as a cyclical process.

Functional-utility view of the production process

Under a practical approach, the production process adds value to the inputs, so the utility
inputs had before this process was increased. It is focused on what the output is for.

Technical view of the production process

It is determined by using the three production factors, such as, natural resources, workforce
and capital funds and applying a technology to obtain the goods and services. It is focused
on how the production process is done and organized.

Technology development
Technology refers to the processes, the machinery and toolings used at a certain time
together with the production factors to obtain goods and services. The technology is
developing permanently thanks to the efforts made by the public and private sectors. The
tools to develop new technologies are called R+D+I (Research Development Investigation)

Technological efficiency
One technology is more efficient than the other when:
- Produces a bigger output using the same amount of inputs (production factors)
- Needs a smaller amount of inputs for producing the expected same amount of output

Economic efficiency
Economic efficiency refers to choosing the cheapest technology among the technically
efficient ones that are available at that specific time.

Production costs and profit

Profit = Full revenue - Full cost
Types of cost
Fixed cost:
- No link to the activity volume
Variable cost:
- Linked to the activity volume
- More units more costs

Average cost per unit

The average cost or Cost per unit (Cu) is the sum of all the costs needed for producing one
unit.

Marginal cost and revenue

Marginal revenue → The revenue obtained from selling an additional unit
Marginal cost → The cost of producing an additional unit
Marginal revenue - Marginal cost = Marginal profit

Law of diminishing marginal returns

The law of diminishing marginal returns is a theory in economics that predicts that initially
adding additional factors of production results in increases in output obtained. Then after
some optimal level of capacity is reached, adding an additional factor of production will
actually result in smaller increases in output.

Economies of scale
Big companies produce more and more, so they ŕ e able to reduce the full cost per unit
and can get their products produced cheaper.

Direct distribution and Non-Direct distribution advantages and disadvantages

Direct distribution Non-direct distribution

Advantages - Know customers - Can reach a larger

closely and their geographical area
desires - Experts putting
- Total control of the products on the
company’s image hands of customers
- No need to pay for
intermediaries
- All profits are for the
company

Disadvantages - Limited geographical - Intermediaries also

area sell competitor
- Lots of resources products as well as
needed yours
Different distribution channels
- E commerce
- Franchises
- Outlets
- Pop-Up-Stores
- TV Shopping
- Vending machines
- HO-RE-CA (hotels, restaurants, cafeterias)
- Gourmet and delicatessen stores
- Social media stores
- Drive throughs
- Glovo, just eat etc.
Market definition
A market is the combination of sale/purchase activities made by Sellers and Buyers of a
product/service. Sellers are referred to Companies and buyers are referred to
families/households.

Market types
1. Output market: where goods and services are exchanged
2. Input market: where resources to produce goods and services are exchanged
- Labour market → households supply work for wages
- Capital market → households supply their savings for future profits to businesses that
demand funds to buy capital goods
- Land market → households supply land or properties in exchange for rent.
compraventa de tu propiedad

Demand
Demand is the number of units of a certain Good/service that buyers (households) are willing
to buy at a certain price level.

Factors that affect demand

1. Price of good or service
2. Price of the linked good or service
- Complementary: Gasoline for a car…
- Substitute: Car for a motorbike…
3. Disposable personal income
- Low price: wholesaler brand
- Medium price: meat, wine…
- Luxury goods and services: gourmet food…
4. Preferences and priorities
- Market trends
- Marketing campaigns
- Expectations about its future

Demand curve
A Demand curve is a graph illustrating how much of a given product a household would be
willing to buy at different prices.

Supply
The Supply determines the number of units that companies are willing to produce at a
certain Price level.

Factors of supply
1. Price of goods or services
2. The cost of production
3. The goals set by the company

Supply curve
A Supply curve is a graph illustrating how much of a given product a Business would be
willing to sell at different prices.
Market equilibrium
When the quantity demanded by families and supplied by companies , the market reaches
an equilibrium. At any other price level, the market would have either a surplus or a
shortage.

Excess of demand: Shortage

If prices lower the supply will go down, but the demand will raise, creating a gap in the
market.

Excess supply: Surplus

If prices are raised the supply will increase, but the demand will decrease, creating a gap in
the market.

Demand curve slipped

The price of something stays the same, but because of some external factors, the demand
increases.
Factors that affect the demand curve

DEMAND UP DEMAND DOWN

Price of the goods Price down Price up

Price of linked goods Substitute price up Substitute price down

Price of linked goods Complementary price down Complementary price up

Disposable income Income up Income down

Priority and preferences Trendy Not trendy

Supply curve slipping

Factors that affect the supply curve

Brings up supply Brings down supply

Price of the goods Price up Price down

Production costs Costs down Costs up

Production costs Gain market share Maximize profit

Demand-price elasticity
Demand Price-elasticity measures the change in the number of units demanded as a
consequence of a price modification.