Running Head: ASSIGNMENT

Topic: Basic Economic Ideas and Resource Allocation

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 Assignment 2

Contents
Introduction......................................................................................................................................3
Factors of Production.......................................................................................................................3
Rewards that can be earned using Factor of Production..............................................................3
Human Capital and Physical Capital...........................................................................................4
Division of Labour and Specialisation........................................................................................4
Different Economic Systems...........................................................................................................5
Market, Planed and Mixed Economic System.............................................................................5
Advantages and Disadvantages of Resource Allocation in Different Kinds of Market..............5
Different Markets affect on Tesla................................................................................................5
PPC Curve.......................................................................................................................................6
Production Productivity Curve....................................................................................................6
Explanation of the PPC Curve of Tesla.......................................................................................6
Causes and Consequences of Shifts in a PPC..............................................................................7
Classification of Goods....................................................................................................................7
Free and Private Goods................................................................................................................7
Public Goods................................................................................................................................7
Merit and Demerit Goods............................................................................................................8
Imperfect Information Leads to Consumption of Merit Goods...................................................8
Imperfect Information Leads to Over Consumption of Demerit Goods......................................8
References......................................................................................................................................10
 Assignment 3

Basic Economic Ideas and Resource Allocation

Introduction
The economics is study of the implications and scarcity of the use of scarce resources.
This assignment will explain the concept of division of labour and specialisation, different
economic systems, production productivity curves, and classification of goods. The question will
be answered in the context of the chosen organisation Tesla and all the examples will be related
to the company.

Factors of Production
Factor of production also known as means of production are the fundamental elements
that are needed to manufacture any consumer goods. The four generally accepted factors of
production are land, labour, entrepreneurship, and capital. In capitalist economies, these factors
are mostly owned by private individuals, business owners, and investors. In economics, these all
factors are put together to manufacture goods. Tesla, the leader in world EV technology also
employs all factors of production in making electric cars. Tesla uses the land to create their
facilities of production. Direct and indirect labourers are employed to keep work going. Founder
of Tesla Elon Musk is himself an example of Entrepreneurship. Lastly, investors and revenue
provide the capital they need to manufacture. All four factors are production play a part in
creating a finished good. However, there may be organisations that say do not need all four
factors of production due to their reliance on robotics.

Rewards that can be earned using Factor of Production

Depending on the economic system. Factors of production in return provide rewards to
those who employ them. In a free market, means of production are usually owned by individuals
or households and firms. The party who owns them make means of production available to firms
who then combine them with other factors to produce goods. The reward is the amount they
receive by giving land to producers. Households receive rewards in the shape of rent for land,
wages for labour, interest for capital, and profit for entrepreneurship. If the land is owned by
 Assignment 4

Tesla, then they are left with more monetary rewards. Nonetheless, they still incur implicit costs
for land. Employees of Tesla earn rewards in the form of remuneration and benefits. Thirdly,
Elon Musk (entrepreneur) earn reward in the shape of profit. And lastly, investor earn rewards
for their capital in the form of dividends and equity in the company.

Human Capital and Physical Capital

Human capital is an intangible asset such as skills, competency, knowledge, and expertise
that a company possess in the market. Whilst, physical capital possesses tangible items, for
instance, job sites, cash, equipment, inventory, and property. There is a properly defined rules
and methods to measure the value of physical capital. For instance, Tesla’s inventory of cars,
facilities, technology, and cash are the physical capital for the company. On the flip side, human
capital is difficult to measure due to intangibility. For this reason, it cannot be found on the
company balance sheet. Tesla's human capital is its core competency which is innovation and
unorthodox then other automobile manufacturers. Since it is difficult to measure human capital,
it involves a more vigorous set of metrics for measuring. For example, one needs to measure
time to hire, earnings per employee, turnover, labour utilisation ratio and so on.

Division of Labour and Specialisation

The concept of specialisation is based on efficiency. It states that labour only performs a
single task in the whole process of production. There are certain advantages of specialisation,
some include increased output because workers are more efficient when they perform similar
duties over and over. Since worker performs similar tasks, there is less wastage because of their
expertise. The lower wattage and high efficiency bring down the unit costs. Division of labour is
based on the concept that different labour is required for different tasks. For instance, a worker
doing the finance job at Tesla cannot perform the job in the assembly. Thus division of labour is
necessary for the company to handle different departments as per their expertise. However, on
the big scale of the globalised world, it can lead to dependency on the other countries. In the case
of Tesla, it has majorly moved to China due to lower operating costs and expertise.
 Assignment 5

Different Economic Systems

Market, Planed and Mixed Economic System
A market is a place or online platform where buyers and sellers interact with each other
to sell and purchase goods. There are two main types of economies which are Capitalism and the
other is socialism. Capitalism is based on the free market and public ownership of means of
production. Whilst the Socialist economy system is controlled, the state owns all the means of
production and makes relevant laws to control the demand and supply. A mixed economy is the
amalgamation of both capitalist and socialist economies. Such a system protects private property
rights and has low levels of control over the market. However, this system still has some degree
of government intervention over economic activities. Where government intervene and
command the production and dissemination of goods, it is known as the planned economy. State-
owned enterprises and sometimes independent companies are incorporated into this system to
plan pricing, production, and wages.

Advantages and Disadvantages of Resource Allocation in Different Kinds of

Market
In a market economy, demand and supply decide the prices and production levels in the
economy. This creates a competitive environment and incentivises the firms. Moreover,
competition drives the company to produce more with efficient methods to reduce costs which
brings the price down. This is the most efficient economic system, however, for this market to
function properly, the system needs to perform without any intervention from the government.
The major disadvantage of the market system is its vulnerability to monopolies, and poor
working conditions if the government is not maintaining the competitive market. The advantage
of a planned economic system is the fact that it has less inequality as the government makes sure
to distribute resources accordingly. On the contrary, it does not incentivise the firms to find ways
for better efficiency. In the mixed economy, it has better elements of both systems. However, it
can face the high burden of social welfare programs.

Different Markets affect on Tesla

The US is a mixed economy to a certain degree because it has some degree of
government intervention in some markets i.e. agriculture. Since Tesla does not come under the
 Assignment 6

controlled market domain of the US government, it is operating in a free market economy. Tesla
in the open market economy can face the issue of competition which can lead to more production
efficiency to drive the cost lower. , competitors like Mercedes now have more efficient
techniques to lower their costs. It is the kind of threat that Tesla would not face in a planned
economy. A mixed economy can have a positive affect on Tesla because all the demand and
supply is already planned by the government and Tesla would not need to drive their prices
lower as there will be fixed quotas and pricing decided by the government.

PPC Curve
Production Productivity Curve
The production productivity curve represents the optimal levels of the combination of
two products that can be produced from the same limited resources. In the case of Tesla, the
manager’s dynamic decision is to produce two models of Tesla EVs. For instance each month
they decide which model to produce in which quantity i.e. Model S sedans or Model X SUVs.
This brings the management to take a decision, if they produce Model X in greater quantity the
other Model X will ultimately be produced in small quantity due to finite resources. This concept
plays a vital role in world economics. In this concept, one has to always give up on another thing
to proceed with another one. The opportunity cost is given up in the case of Tesla if they produce
model S more, low production of model X will be the opportunity cost Tesla incurs.

Explanation of the PPC Curve of Tesla

The PPC curve of Tesla for two of its variants can be dependent on the demand factor.
Tesla can produce 100 units of model S with 0 units of Model X or 0 units of model S with 70
units of Model X. This brings to the condition where the management of Tesla has to decide
which model to produce in what quantity. If they produce all units of prior, they have to incur the
opportunity cost of later. The optimal level would depend on the demands of EVs in the market.
It is the decision-making metric for the management of Tesla. If Tesla decides to produce only
the Model S for the period, they will incur the constant opportunity cost of Model X and with
each unit increase in the planned output, Tesla will have increasing opportunity cost.
 Assignment 7

Causes and Consequences of Shifts in a PPC

If the Tesla PPC shifts outwards, it will lead to more production capacity as the resources
of the company have increased. This shift in a curve can be a result of the more advanced form
of technology i.e. silicon anode batteries. Another reason could be the capital expenditure to
extend the facility and hire more human resources. The PPC curve of Tesla is more dynamic as it
has not only two products and involves different materials for different kinds of products. Since
it is a technology company, it has a dynamic PPC curve with different materials and software for
different variants. In this case, the Tesla PPC curve moves leftwards, which indicates that the
production capacity of the company has declined. The leftward shift in the PPC curve of Tesla
can be caused by the economic factor, tax factor, or some other limitation on the resources.

Classification of Goods

Free and Private Goods

Free goods are available to all without any charges. These are the goods that are not
scarce and are available in abundance. Free goods like air and sunlight are important to everyone
and the reason they are free is because they are not produced with the capital and human
resources. Water is also a free good if one lives beside the river, a small village can easily settle
near the river without paying for the water. On the other side, private goods are those goods that
are produced by the privately owned company. It provides consumers with satisfaction and
utility. Tesla EVs are a good example of private goods. Private goods are priced due to the factor
that consists of the costs of a factor of production.

Public Goods
Public goods are the goods that are provided by the government without any charge.
These goods are installed for the benefit of all public and they are shared in nature. Their charges
are covered through the government tax revenues. Roads and street lights the examples of public,
they are open to all with any charges. It helps citizens to commute from one place to another and
 Assignment 8

light helps them to navigate the way in the dark. Another example is the lighthouse, which is
installed to guide ships in the night. Public gardens, playgrounds, and police services all come
under the public goods. Public goods are the opposite of private goods as they are solely for the
collective benefit of society. The two main conditions for public goods are that they must be
non-excludable and do not have rivals.

Merit and Demerit Goods

Merit goods financed by the government. These goods contain the element of necessity
for individuals and they are deemed to be desirable by the public. The reason they come under
the government domain is because they are susceptible to underproduced. Merit goods include
education, fire extinguishers, public parks, health care and so on. Lack of merit goods can
consequently lead to catastrophe or undesirable living conditions. A good can have a negative
impact on consumers with consumers ignoring the negative consequences of it. This kind of
good is termed a demerit good. The demerit good also has externalised and it can cause damage
to the third party let alone the consumer. Alcohol, cigarettes, junk food, cigarettes, are gambling
are all demerit goods. The government often implement massive taxes on the consumption and
production of demerit goods to deter consumption. The car also causes externality however, it
does not harm the person who is driving it.

Imperfect Information Leads to Consumption of Merit Goods

The dissemination of information regarding the demerit good is often the reason for
under consumption of merit good. Failure to spread the information of merit goods has always
remained the lead reason behind the underconsumption of merit goods. For instance, free
education is a merit good, but many people don’t send their children due to a lack of awareness.
Thus the government needs to make people aware of the merit goods through proper channels to
provide merit goods to the majority of the population.

Imperfect Information Leads to Over Consumption of Demerit Goods

The information of the demerit goods if not properly communicated can lead to the
overconsumption of the demerit goods. Moreover, the government usually fall short of the
remedy to control the use of consumption of demerit goods. Through the proper distribution of
information and awareness campaigns, the government can overcome the problem of
 Assignment 9

overconsumption of demerit goods. One of the main reasons behind the overconsumption of
demerit goods is the addiction element some of the demerit goods contain such as cigarettes,
alcohol, and gambling.
 Assignment 10

References

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