Economics IGCSE Edexcel - Business Economics

Factors of Production:

Land- includes the plot of land the business is based and the natural resources.

Labour- the workforce.

Capital- this is the artificial resource used for production. Working/circulating capital refers to the raw materials and components needed for production and the finished goods. Fixed capital includes machines, tools, equipment and factories.

Enterprise- responsible for setting up the business, coming up with business ideas, providing the finance, taking risks, and organizing the other 3 factors of production.

Production can be improved by either increasing one of the factors of production or by increasing productivity by having more efficient machinery or by encouraging workers to work better by training them or introducing incentive schemes and new working practices.

There is a difference between production and productivity. Production is the output as a whole while productivity is the output of a single unit of production.

Factors affecting productivity:

1. Land- the quality of land can be improved through the use of fertilizers and pesticides. Irrigation (diverting of water), drainage and the use of genetically modified crops are also possible.
2. Labour- human capital can be improved through education and training, improving the worker's motivation or improving the working practices used by the employer.
3. Capital- the use of machinery and new technological advances such as robots and the internet.

Sectors of the economy:

Primary- the extraction of raw materials (e.g. mining, fishing).

Secondary- the conversion of raw materials to finished or semi-finished goods (e.g. metal work, automobile production).

Tertiary- the provision of services (e.g. accountancy, transport, leisure and financial services).
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Underdeveloped nations have a large primary sector, a small secondary sector and almost no tertiary sector. For example, in Uganda, 80% of the population work in agriculture.

Developing nations have a medium primary sector, a large secondary sector and a rising tertiary sector. An example of this is Thailand.

Developing nations have a very small primary sector, a decreasing secondary sector due to deindustrialisation and a large tertiary sector. An example of this is Spain which relies mostly on its tourist and banking industries.