Organization of Factors of Production - Assignment Example

?Running Head: Three perspectives on a current issue from the three paradigms being covered in Three perspectives on a current issue from the three paradigms being covered in class Course Title Course Instructor Insert Name 27/09/2011 Outline Introduction Organization of Factors of production Social Institutions Neoclassical Paradigm Consumer Welfare The Radical Ideology Pollution Conclusion Three perspectives on a current issue from the three paradigms being covered in class Introduction Economic goods and services are produced using factors of production as production resources. There are various types of factors of production, which include land, labor, and capital goods that are organized by entrepreneurs to come up with finished goods. Land, as a factor of production, is a natural and passive resource that is valued in terms of economic rent and can only be improved economically, since it cannot be produced. Rent paid by entrepreneurs basically constitutes the land resource, which is used to produce other economic goods and services. Human resource is an active factor of production, which constitutes human labor as a service provision for the production of goods and services that is paid through wages and salaries. Man-made goods that are used for further production of goods and services are referred to as capital goods and include buildings and machinery that are paid as interests. Land, labor, and capital are exploited for production of goods and services in the economy to constitute the national income. Factors of production that can be shifted are capital and labor while land cannot be shifted, since it is a limited factor of production. Labor organizes capital for production although entrepreneurs must maintain an effective ratio of capital goods and labor with a production firm. The decision-making process needs to put into consideration that excess labor per unit of capital and vice versa may lead to losses due to inefficiency. Therefore, labor and Capital must be applied in effective ratios for realization of the highest possible economic value (Sagar 50). Organization of Factors of Production Enterprises should be organized by combining labor, land, and capital effectively through a business plan so as to start and run the business. Organization of factors of production does not only constitute planning and running a business, but also absorbing loss for continued production. Enterprise organization as Production process is complex and essential, since there exists small situations in and outside a country that influence organization, thus the necessity of proper planning and operation of an enterprises. Land, as a factor of production, is controlled by land owners, while capital goods are controlled by capitalist and labor as a human resource with respect to occupation skills and salaries. These factors of production are scattered within the economy and thus the need for organization of these factors of production. Social Institutions The economic interactions of technology, capital goods and social institutions contribute significantly to economic growth through effective production. Social, political, economic and legal institutions in a country affect the economic growth both positively and negatively. Normally, countries seek to redesign their social, political and legal institutions to alter their impact for the improvement of the economy. Institutions that are known to be beneficial in contribution to economic growth should lead to importation of the institutional structures of another country that has benefited from economic growth. Examples of countries that have imported institutional countries include Dubai, which imported London’s commercial law that helps the government in city regulations. However, in many countries, the complete overhaul of institutional structure may not be possible due to political and social disagreements. Political, legal and social institutions go beyond the aspects of basic institutional entities such as the judiciary and parliament. Institutions can be basically described as the generally accepted procedures that govern the societal interaction within a country. Importantly, the institution of the Legal systems is fundamental for economic growth through common law and civil law distinction. Civil law is based on the Supreme Court that defines particular statutes while the common law is based on law formulations by the judges. Independence of the judiciary in the legal systems has also been imported by many countries, since it is viewed as a huge contributing factor to economic growth. Economic impact caused by these institutions is proved to occur in a highly correlated manner across many countries because of similar colonial inheritance. The English colonies, for example, have followed the legal system of common law, which has similar impact on economic growth. Economic disentanglement of these systems and impacts are geographically correlated, which influenced the type of institutions imported from the colonies. Moreover, geography has a significant impact on the economic growth rates with regards to the natural environment. Neoclassical Paradigm The strategy of utility and expenditure among consumers and producers has characterized the aspect of physical theory with the variables of utility and expenditure. However, the physical theory does not directly represent interaction of expenditure and utility in line with the liberal economy where consumer demand is subject to diminishing marginal utility; indeed, supply is subject to diminishing returns to variable factors. The physical theory represents utility maximization and the national income as conservation, while expenditure is represented as energy in motion. This theory is however not completely consistent with the current neoclassical economies, since the principle of conserving utility and national income is irrelevant for economic growth. The physical theory scientific assumption has its basis on the general equilibrium theory in the free market, where the invisible hand controls markets into a balance (Sheng and Sheng 45-68). Economic theories deal with variables that are permanently in a continuous state, which correlates with economic theory that defines the variables into particular quantities. In Neoclassical economy, theories define the specific economic variables as continuous functions using differential calculus to describe the variations. However, there are arguments against these descriptions and definitions of economic variables using differential calculus, since economic is based on scientific theories that are mathematical (Schmandt and Ward 67-68). Consumer Welfare Consumer welfare has been necessitated by the need for establishment of consumer protection laws to ensure consumers receive true marketplace information and subjected to a marketplace where fair trade and competition exists. The law seeks to protect consumers against incomplete information from the corporate principles of increasing sales and profits while reducing cost. The consumer protection laws are put in place to ensure health and safety of consumers and restrict unfair and fraudulent practices by business people who want to forcefully gain competitive advantage over their competitors. The consumer protection laws provide additional strategies to protect the weak enterprises that are unable of protecting themselves against unfair practices. The government seeks to enforce regulations to protect consumer rights through consumer protection laws. The regulations may include government requirement of entrepreneurs to disclose full and detailed information of the line of business with regards to health and safety to consumers of their products. Consumer protection laws seek to protect the rights of consumers through the use of consumer organizations to assist the government to uphold consumer rights and to guide consumers in making the right marketplace choices. Consumers acquire goods for direct use and indirect use for production and manufacturing of other goods and services. Moreover, competition laws aim at protecting consumer interest in the market place while ensuring that the laws do not inhibit economic efficiency for economic growth (Cseres 330). The Radical Ideology The economic system of profit capitalism is non-consistent with the radical paradigm in the market place of a given economy. The Canadians ideology has for a long time challenged the socialist ideology and may be seen to be consistent with the radical’s paradigm, though this may not be the case. The radicals are committed to coming up with analytical and intellectual information against the ideologies of the conservative and liberal markets in the economy. The radical paradigm bases its argument on the Marxist critique, which states that the real time that is taken in producing a commodity reflects the value of the commodity being produced (Carson, Thomas, and Hecht 24). Capitalist economies have for a long time tried to reverse the tendencies of radical economic tendencies that are considered as a contributing factor to slow economic growth. However, the radical economic tendencies can only be moderated through structural change of capitalist institutions. The Marxist critique advocates for institutions that are consistent with the economic system of communism. The capitalist system where the economy is characterized by private ownership shifted to communal planning. Many countries have centralized their economic plans and nationalized the industry though radicals are convinced that there is still control on production and investment. Government control of investment and production must specify the location and the amounts in which the production and investment takes place. The Marxist point of view and the orthodox point of view have divergent views concerning the efficiency of economic systems. The orthodox points out at that the nature of human beings being in need of self gain and acquisition as a primary motivator. On the other hand, the Marxist radicals point out that human motivation is primarily based on doing away with the need for self gain and acquisition for sustenance of economic developments in the capitalist states. Communal human behavior should be based on socially conscious human behavior in the democratic systems devoid of different social class. The radical paradigm basically focuses on specific aspects of the capitalist system while other parts are considered as perfectly fit for economy growth and development. Economic scientific views claim that economic distributions are controlled and influenced by human institutions, which could be altered through legislations, while production is consistent with natural laws that cannot be controlled. The introduction of the law of taxation was seen as an economic growth friendly system of income redistribution. Pollution Pollution has resulted from production of goods and services for economic growth but consequently impact economic growth and development negatively. Water pollution is the largest damaging factor to the economy, since treatment and prevention of contamination for human consumption is costly for the economy. However, wastes that cannot be broken down easily lead to accumulation of wastes in the earth’s waters. This consequently pollutes sources of water such as rivers, lakes and even oceans, thus creating external diseconomy. Prevention of pollution has however been undertaken through environmental regulation. Prevention of water pollution is done through the use biological and sand filters to prevent water contamination. The economic significance of preventing pollution is that, cleaning up pollution occurrences is more costly than prevention. Clean up costs are expensive to the economy with regards to location in which pollution occurs. There are particular types of pollutants that are extremely costly to clean up, while others are relatively cheaper to clean up and also prevent. Moreover, there are a number of costs incurred by the economy in enacting environmental regulations. Environmental regulations costs range from pollution abatement costs, regulation costs to entrepreneurial losses. Businesses are restricted from engaging in particular activities that contribute environment pollution, even though such activities contribute to economic growth (Jaffe, Lerner, and Stern 44). Conclusion Countries that use capitalist system of governance should seek to redesign the system through introduction of reforms in their social, political and legal institutions. These reforms will help in improving the capitalist system that has impacted negatively on economic growth. Moreover, social, political, and legal institutions are known to have a direct impact on a country’s economic growth, thus capitalist countries should seek to import the institutional structures of other countries that have benefited from economic growth. Dubai is an example of countries that have restructured their institutions. Dubai’s imported London’s commercial law has significantly contributed to economic growth through enhancement of government’s city regulations. However, political interferences in many countries have prevented the adoption particular communist market aspects to improve the capitalist market structure for economic developments. Works Cited Carson, Robert B., Thomas, Wade L. and Hecht, Jason. Economic Issues Today: Alternative approaches. NY: M.E. Sharpe, 2005. Cseres, Katalin J. Competition Law and Consumer protection. NY: Kluwer Law International, 2005. Jaffe, Adam B., Lerner, Josh and Stern, Scott. Innovation Policy and the Economy. London: MIT Press, 2004. Sagar, Rachna. Together With Economic Applications. New Delhi: Rachna Sagar Pvt LTD, 2005. Schmandt, Jurgen and Ward, Calvin H. Sustainable Development: The Challenge of Transition. Cambridge: Cambridge University Press, 2000. Sheng, Ching-lai and Sheng, Qinglai, Utilitarian general theory of value. Amsterdam: Rodopi, 1998. 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