Economics Case Study
The factors of production are the inputs used to manufacture products and provide services. These inputs include labor, land, and capital. The theory of the firm is a microeconomic model referring to businesses and corporations and how those entities exist to make profits. Firms interact directly with the market to determine the demand for their goods so they can define the price consumers are willing to pay. Referring to the circular-flow diagram model we can see how households and firms are interdependent. Firms use the factors of production to produce products that households consume. Households provide the factors of production the firms use such as labor and capital when they buy back the goods and services. The firm is responsible for making decisions in regard to resource distribution, the way production is implemented, and pricing theory. I believe most people think the theory of the firm is only to maximize profits, I find this important but a short-sighted goal. I think sustainability through better resource allocation of capital, labor management and development will generate viable long-term profit growth.
1.2 Define and discuss the primary differences between the capitalist and socialist political economic systems within the context of the factors of production? What economic system best describes the US economy and why?