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Contribution of Enterprise to Aggregate Supply

Question

Explain how the factor of production enterprise contributes to aggregate supply in a modern economy and how it differs from the other factors of production in terms of the reward its services.

[8 marks]

Category:

Macroeconomic Factors and Policies

CIE AS Level November 2020

Preview Answer

(Step 1 : Define factors of production and enterprise)



Factors of production refer to the inputs required to produce goods and services.

Factors of production consist of land(natural resources), labour(human resourses), capital(man made aid to production) and enterprise.

Entrepreneurs carry out two functions in a market economy. First, the enterprise factor organises the other three factors of production which are, land, labour and capital. Second, enterprise involves taking the risk of production, which exists in a free enterprise economy. The return for enterprise is the profits that are made.




(Step 2: Explain how enterprise differs from the other factors of production in terms of the reward for its services.)

Enterprise differs from the other factors of production in terms of the reward for its services.

Unlike other factors the role of entrepreneur is that of a decision maker and assumes all the risk involved in the running of a business. Profit is the reward to enterprise for its services. In order to produce goods and services enterprise needs to hire labour which is rewarded with wages , land which is the natural resource rewarded with rent and capital which is rewarded with interest.

The entrepreneur is the driving force behind production. An entrepreneur will innovate and introduce new products, new productive techniques, or new forms of business organization to the market. The entrepreneur risks not only time, effort, and business reputation but his or her invested funds and those of associates or stockholders.



(Step 3: Explain how the factor of production enterprise contributes to aggregate supply in a modern economy)

The factor of production enterprise contributes to aggregate supply in a modern economy in several ways.

👨‍💼(1) Enterprise will utilise the other factors of production to produce goods and services that increase aggregate supply.

An entrepreneur has the power to change the way an economy is moving. He also advocated that an entrepreneur is the person who combines production factors to make the production process efficient. An entrepreneur characteristically innovates, introduces new technologies, increases efficiency, productivity, or generates new products or services. An entrepreneur acts as a catalyst for economic change and research indicates that entrepreneurs are highly creative individuals who imagine new solutions by generating opportunities-for profit or reward.

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