SupplyChangeCostFactors

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SupplyChangeCostFactors

I’m ______________________ speaking to you from Joliet Central High School, room 377 for the Institute for the Teaching of Economics in All Subject Areas. You are listening to:The Institute for the Teaching of Economics in All Subject AreasVolume Three, Issue OneDeterminants of Supply/Change in the Cost of the Factors of ProductionIn economics, land, labor, capital and entrepreneurship are called factors of production. The business owner, or entrepreneur, will seek to make more efficient use of productive resources, that is, land, labor, and capital in an effort to make a profit. The assembly line has empowered many business owners to achieve this goal. Henry Ford has become a household name as the result of using the assembly line to manufacture automobiles in the early twentieth century.In the Model T Production Plant, Ford developed methods for getting the most from each of the factors of production. His factory was carefully organized and featured workers assembling cars as they passed on a conveyor. In this way, every inch of the land on which the factory stood was being used in the production process and not laying idle. In addition, whereas in the past an individual worker might build an entire product, the assembly line required workers to specialize in one task of the production process. Consistent with the ideas advanced by Frederick Taylor in his studies on time and motion, by moving the unfinished product instead of the worker, the assembly line allowed for a more efficient use of labor. Moreover, since many of the parts being assembled were produced in remote locations, the machines, or capital, needed to manufacture these parts did not reduce the efficiency of the assembly line. This concept decreased the potential for interruptions in the manufacturing process.According to economic theory, a decrease in the cost of the factors of production will allow entrepreneurs to increase supply. In the case of Henry Ford, the assembly line, and the Model T Production Plant, the combination of improved efficiency in the use of each of the factors of production lead to a massive reduction in the time necessary to take an automobile through the production process. A decrease in the cost of the factors of production will cause the supply curve to shift down and to the right. The result of this shift will be a decrease in price and an increase in quantity supplied.


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