Ex.22. Read the text. Choose the best sentence A-G to fill each of the gaps 1-7. Do not use any sentence more than once. There is an example at the beginning

0 These are four generally recognized factors of production.

AIncreasingly, theory has come to treat any investment as a capital investment.

B Before the twentieth century, only three factors making up the "classical triad" were recognized: land, labour, and capital.

CNow there are entrepreneurial financiers as well as entrepreneurial producers and distributors.

DMarginalists held that any factor of production could be scarce.

ETheir answer was that it came from labour.

FThis led them to attribute productivity to equipment rather than only to labour.

GThus the physiocrats explained land rent as coming from surplus produced by the land.

Ex.23. Read the text again and decide whether the following statements are true or false. Correct the false statements.

1. Entrepreneurship is a fairly ancient addition.

2. A major conceptual application is in the theory of production functions.

3. For the Spanish physiocrats led by Francois Quesnay in the 1750s and 1760s, land was the only factor yielding a reliable gain to its owner.

4. The classical economists assumed only land—understood as natural resources—could be scarce in the short term.

5. Marginal productivity is the extra output obtained by extending a constant amount of labour and capital over an additional unit of land of uniform quality.

6. Classical economists tried to answer the question: Where does profit come from?

7. Technical innovation decreases labour productivity.

8. Choice among production techniques involving different combinations of labour and capital became a major theme in classical growth theory.

9. Frequently capital is treated as finance, associated with the payment of interest.

10. In the marginalist view, profit rather than interest was attributed to ownership of capital.

Ex.24. Answer the following questions.

1. What is the factor concept used for?

2. Where could proprietors collect surplus (for the French physiocrats)?

3. What does the value of a crop depend on?

4. What does rent reflect (in the marginalist view)?

5. What question do classical economists tried to answer?

6. What increases labour productivity?

7. What became a major theme in marginalist growth theory?

8. How is capital defined?

9. How is capital treated frequently?

10. What is the entrepreneur's role in The Theory of Economic Development?

Text C: Factors of Production for an Innovation Economy

Ex.25. Before reading

Can you anticipate what an innovation economy is?

Ex.26. Reading

(1) Many years ago, economists from the industrial revolution identified three variables (productive inputs) for building industries; Land, Labour, and Capital. The rate of output was related to how these inputs were combined. If any of these factors of production were missing, the other two had little or no utility for production. The concept of Land, Labour, and Capital is still the foundation of much of today’s economic thought.

(2) We know that in the knowledge economy, the location of knowledge work is highly mobile – so “Land” does not have the same significance for making things as it did 100-200 years ago. What about “Labour“? Knowledge workers analyze situations, manage many variables, and create unique solutions. They do not really produce identical knowledge pieces like a machine operator or a production worker –so Labour also means something different than a century ago. The term “Capital” refers to money that would be needed now to build future structures, buy machines and to pay wages. Today money buys access to information, education, and knowledge workers. So we see that many old economic principles may not be as applicable in the new economies.

(3) The factors of production for the Innovation Economy are Intellectual Capital (also call Human Capital), Social Capital, and Creative Capital + Entrepreneurs. (Reference: Jane Jacobs, Robert Putnam, Richard Florida)

(4) Intellectual Capital Theory suggests that concentrations of educated and motivated people attract investors to employ them and invest in the communities where they reside. This investment attracts other intelligent people who in turn attract more investment thereby creating a cycle of economic growth.

(5) The Social Capital Model suggests that people acting in communities can create better solutions, greater accountability, and more economic growth than management, governments, or bureaucracy can induce on their own. Examples of Social Capital include Civil Rights Movement, community watch organizations, Democratic Government, and recently, Social Networking.

(6) The Creative Capital Model suggests that engineers and scientists think more like artists and musicians than like production workers – their ideas come 24/7/365 – and that an environment of tolerance, diversity, and openness promotes creative output.

(7) Many people argue that Silicon Valley, in fact, was created and sustained by a perfect storm of Social Capital, Creative Capital, an Intellectual Capital + Entrepreneurs. Other countries have tried to duplicate Silicone Valley but most have fallen short – if any of these factors of production are missing, the other two have limited utility for production of innovation. To demonstrate how these productive inputs might appear in an innovation economy, consider the following example:

(8) Suppose that we take 5 mechanical engineers and lock them in a room with instructions to build a better mouse trap, they’ll emerge with a better shingle, a better spring, a better whacker, and a better trigger – but not necessarily a better mousetrap. Suppose that we now put a dog catcher, an engineer, a plastics manufacturer, an artist, and the mother of 4 rowdy children together with the same task. We can be quite certain that innovation will occur. They may actually come up with an excellent mouse trap.

(9) Innovation Economics will bring the factors of production together in diverse combination rather than similar combination. In an Innovation Economy, the “secret sauce” for the production of innovation becomes far more valuable than any single innovation itself. The secret sauce provides a monopoly on dynamic repeatability rather than a static device. As such, technologies can be open sourced and innovation crowd sourced across a much wider domain of possible user applications. Such conditions will change the type of innovations that are favoured to reflect the broad and sweeping social priorities rather than innovations that are easy to patent, protect, and monopolize.

Task 1. Discuss what Dan Roblescould mean when he said that the rate of output was related to how the inputs (Land, Labour, and Capital) were combined. (para. 1)

Task 2. Explain how you understand Dan Robles’s ‘knowledge economy’.(para. 2)

Task 3. If something is innovative, is it

a) recently made, built, invented, written, designed etc;

b) more difficult to understand;

c) new, different, and better than those that existed before?

Task 4. How does the author describe Intellectual, Social and Creative Capital? (paras 3-6)

Task 5. What does the author mean by “mouse trap building”? (para. 8) What place does he focus on in the above text?

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