Technology and Capital Goods
Market system needs extensive use of capital goods. Supplier’s self-interest, competition, willingness for high-revenue and freedom of choice create a motivation for using technological advantage. In order to have high income an economic unit should grow very fast and have a high efficiency at output production, that’s why suppliers are building capital goods like: machineries, tools that create facilities for goods storage and transportation.
The only way to acquire a high efficiency at production is to rely on roundabout production.
Division of labour
Human specialization, which is also called division of labour, contributes society’s output in several ways.
- Specialization helps us to take advantage of our differences. For example one which are better at math will be an accountant, so this person will do his/her job faster than one which is good at writing poems.
- Specialization helps to improve our abilities by doing. If we devote our time to a single task, we will be able to do it faster and more efficient than if we would do multiple actions in the same period of time.
- Specialization saves time. By using all our time to a single task we don’t have losses in time, in contrast to when we shift among more jobs.
Because of this reasons specialization help a society to create more output from the same scarce resources.
In economics money has diverse functions, but the most important of them is using it as a medium of exchange. It makes trade easier.
Let’s take a case in which money doesn’t exist. So the only way some countries can exchange their goods is by barter-exchange of one good by another one. But, here some problems arise. One of them is coincidence of wants between demanders and suppliers. Let’s take one case. Country one (excess potatoes, needs carrots), country two (excess carrots, needs apples), country three (excess apples, need potatoes). In this case trade can occur, but what if country three had excess potatoes and demanded apples? For sure, barter would be very difficult or even impossible. That’s why using money is so convenient. One important property of money is that it should be accepted by sellers in exchange for their goods. The fact that different countries have different currencies makes international trade a little bit difficult, but we shouldn’t forget that there are right now currency exchangers that are very useful if we want to buy some goods from a country that has a different currency. Money helps countries to get some amount of goods that are even impossible without international trade, because that point lies outside of PPC.
Roundabout Production-The construction and use of capital to aid in the production of consumer goods.
Specialization-The use of the resources of an individual, a firm, a region, or a nation to produce one or a few goods and services.
Division of Labour-Dividing the work required to produce a product into a number of different tasks that are performed by different workers.
Barter- The exchange of one good or service for another good or service.