Factors of production and circular flow of income Coursework - 2

Factors of production and circular flow of income - Coursework ensampleAccording to Samuelson (2010) the central concern of scotchs is solving three vital problems what to grow, how to produce and for whom and the solution lies in making choices between inputs and outputs. The aim of this paper is thus to discuss the factors of production and the circular flow of income. To procure this, the paper will be divided into various regions. The first section will be parole on what political economy is and the problems it seeks to address. It will also cover the importance of economicals and design explanation of opposite economies such as the market, command and mixed economy as mechanisms of allocating scarce resources. The second section will address the factors of production land, labour, capital and enterprise. It will discuss their functions, qualities and how their productivity can be improved. The third section will discuss the circular flow of income which shows flow of in puts and outputs between firms and households or at microeconomics level. Lastly, a brief summary of the main points will be given. What is economics and why study economics? Samuelson (2010 4) defines economics as the study of how societies use scarce resources to produce valuable goods and services and distribute them among different individuals. It aims at producing the highest conclave of quality and quantity of goods and services thus enhancing efficiency. Efficiency according to Samuelson is achieved when no individuals economic public assistance can be improved unless someone else is made worse off (p. 5). When efficiency is achieved the welfare of the whole society is improved. Many people might think that it is not essential to study economics but it has a lot of benefits. According to Lipsey and Chrystal (2011) economics is important in helping to understand the arena in which we live and to become astute participants in the economy. It helps us to understand business c ycles in sex act to credit, unemployment and policies put in place to deal with such crises. It also helps people to understand international mess and the effects of globalisation especially in modern era where production has gone global. Government policies to enkindle economic growth, use of resources, full employment and price stabilisation are also the product of economic analysis. Economics takes a scientific approach to analysis of issues in the economy and also applies econometrics to economic problems. It is ground on the principle of holding other things constant when analysing variables (Gitman and McDaniel, 2008). Economics is divided into two categories micro and macroeconomics. Microeconomics deals with markets, firms and households period macroeconomics deals with the whole economy but we shall concentrate on microeconomics. Human wants are numerous or unmeasured and as stated earlier, resources are scarce. As such, it is difficult to satisfy the unlimited wants thus choices have to be made that would lead to efficient allocation of resources. For example, if a firm decides to produce household items, it foregoes the opportunity or alternative of producing industrial items or any other product. The benefits the firm could have gotten by dealing with industrial items (the next best alternative) are what Samuelson (2010) calls opportunity cost. Economics is all about making choices on what to produce, how to produce and for whom given technology and scarce resources (Wessels, 2006). Whatever choice is