Chapter 3: Transforming resources into goods and services

Key Terms:

- Resources/Inputs - the elements that go into producing goods and services.

- Factors of Production - The categorisation of the resources used to convert inputs into outputs, into four distinct elements: Land, Labour, Capital and Enterprise.

- Production - The process whereby resources (factors of production) are converted into a form that is intended to satisfy the requirements of potential customers.

Factors of Production:

1. Land

Natural sources used in production.
Examples: Land, mineral resources (e.g. coal and gold), livestock and fish

2. Labour

Physical and mental effort involved in production, including all types of jobs.
Example: Manual effort in producing finished goods, accountants, window cleaners.

3. Capital

Capital means goods that are made in order to produce other goods and services.
Examples: Machinery, Lorries, Factories, Computer systems, shelving.

4. Enterprise

The act of bringing together the other factors of production to create goods/services.
Carried out by the entrepreneur - who makes decisions and provides the finance.

Improving the efficiency of factors of production:

• Improve the fertility of the land (e.g. use fertilizers)
• Use renewable/recyclable resources -> Reduces waste
• Better education and training of workforce -> to gain greater output from each employee
• More investment in capital equipment -> Higher quality capital can improve speed of production
• Improve entrepreneurial skills and a willingness of entrepreneurs to take risks
• Extend overall scale of production -> lead to greater efficiencies (such as bulk buying)

The Transformation Process

Purpose of a business: To provide goods or services.

Key Terms:

1. Primary Sector: Those organisations involved in EXTRACTING raw materials

• e.g. farming, fishing, forestry and the extractive industries, such as oil exploration, mining and quarrying

2. Secondary (manufacturing) Sector: Those organisations involved in PROCESSING or refining the raw materials from the primary sector into finished or semi-finished products

• e.g. paper mills, oil refineries, textile manufacturers, food processors, vehicle manufacturers 

3. Tertiary Sector: Those organisations involved in PROVIDING SERVICES to customers and to other businesses, in either the public or private sector.

• e.g. education, health, hairdressing, retailing, restaurants, leisure services

Outputs
- A restaurant is an example of a transformation process that produces goods and services.
- Production can lead to undesirable outputs (e.g. pollution and waste) or unacceptable processes (e.g. the exploitation of child labour) as well as the goods/services.
- Firms are being held responsible for these outputs through pressure groups, consumer actions and government laws and regulations.

Feedback
It is the final part of the transformation process. Feedback of information is used to adapt the process in the future to meet customer needs.

Q: Why is the tertiary sector largest in the UK?
A: This is because as economies develop, the tertiary sector tends to grow faster than the secondary sector. As the UK is a wealthy country, the desire for more services increases.

Adding Value

This is how output is measured.

Key Terms:

1. Value added: Sales Revenue - Costs of materials, components or services.

2. Adding value: The process of increasing the worth of resources by modifying them.


Q: How can GBK achieve higher levels of added value than McDonalds?
A:

• Good Quality 
• Restaurant environment
• Relaxed atmosphere
• Healthier
• Trendy
• Branding