Basic Questions of Economics

1. What to produce
2. How to produce
3. For whom to produce

Market – a virtual place where a seller of a product meets with a buyer of a product and
they exchange a product of a service for the agreed payment. Market equilibrium is a
condition when demand on a product/service meets the supply and both participants are
happy to make a deal. At the end the seller receives the payment that is more than the cost
of production and the buyer receives the satisfaction from having a product.

Producer – (Supply Side) manufacturer, seller or a provider is a person or a business that

takes the resources of production as an input and organizes the production process to
provide a buyer a product or service that satisfies their needs. Producer after paying off all
the costs of production, taxes and other expenses receives the profit.

Consumer – (Demand Side) customer, buyer, end-user is a person or a business who has a
particular need to be satisfied, is willing to pay for buying the product or service and
expresses the wish to buy.

Communication - Communication is simply the act, or we can say the process of transferring
information from one place to another, from one person to another, from one source to
another. Although this is a very simple definition, when we think about how we may
communicate the subject becomes a lot more complex. A message or communication is sent
by the sender through a communication channel to a receiver, or to multiple receivers.
The sender must encode the message into a form that is appropriate to the communication
channel, and the receiver then decodes the message to understand its meaning and
significance.
 Factors of Production – Resources
I. Input

Human Resource

 Labor – staff, manpower, employee with qualifications and skills

Payments: wages and salary
 Entrepreneurship- idea, ability, risk taking, can be manager as well
Payments: profit or loss

Natural Resources

 Land – location, raw material

Payments: rent

Physical Resources

 Capital – ready product like factory equipment, machines

Payments: interest (%)

Cost of production – all the payments together is CoP and this is where the unit price of a
product or service is derived from.

II. Production Process

 Management system
 Efficient use of resources
 Quality assurance

Decreasing cost of production is possible by the following nonmonetary means:

 Entrepreneur – can be working as a labor, manager or a simple worker and not

expecting a profit right away
 Land – can be owned, or exploited on favorable terms
 Capital – placement of machinery and equipment can be done for marketing
purposes
 Labor – company can offer a culture that is more attractive to work in for a lesser
pay

III. Output – Product or Service

 Product – a tangible ready material that customers are willing to pay for to satisfy
their needs and the seller earns profit when selling
 Service – intangible ready material that customers are willing to pay for to satisfy
their needs and the seller earns profit when selling
 What is Entrepreneurship?
Entrepreneurship is the development of a business from the ground up — coming up with
an idea and turning it into a profitable business. Most people think being an entrepreneur is
all about coming up with an idea, but that's just one part. An entrepreneur is someone who
can take any idea, whether it be a product and/or service, and have the skill set, will and
courage to take extreme risk to do whatever it takes to turn that concept into reality.

There are basically three types or forms of business ownership structures:

Sole Proprietorship: A business owned and operated by a single individual.

Partnership: A business that is owned and operated by two or more people.

A corporation is a business organization that has a separate legal personality from its
owners

Now let’s discuss advantages and disadvantages for each case.

The advantages with a sole proprietorship include ease and cost of formation — simply
announcing you are in business and requesting any licenses and permits you may need; use
of profits — since all profits from the business belong exclusively to you, the owner;
flexibility and control — you make all the decisions and direct the entire business
operations. There are disadvantages, including unlimited liability — all business debts are
personal debts, meaning you could lose everything you own if the business fails; limited
sources of financing — based on your creditworthiness; limited skills — the sole proprietor
really must be a “jack-of-all-trades,” part manager, marketer, accountant, etc.

The advantages of a partnership include ease of organization — simply creating the articles
of partnership; combined knowledge and skills — using the strengths of each partner for
better business decision-making; greater availability of financing. There are disadvantages,
however, including unlimited liability — all business debts are personal debts; partner
disagreements and action — each partner is responsible for the actions of all the others;
sharing of profits — all money earned has to be shared and distributed to the partners per
the articles of partnership.

Advantages of a corporation include limited liability — an owner (stockholder) can only lose
up to the amount s/he invested; great sources of funding. Disadvantages include double
taxation — the corporation, as a legal entity, must pay taxes, and then shareholders also pay
taxes on any dividends received.