Answer to Question #256131 in Economics of Enterprise for maya

Question

How does the cost of production affect the Economic decisions of Households

Answer 1

Solution:

The factors of production are the resources used in the creation and production of a good or service, and they serve as the foundation of an economy. Economic growth can only be achieved by increasing the quality and quantity of the factors of production, which are divided into four categories: land, labor, capital, and entrepreneurship. In an economy, the factors of production are the resources used in creating or manufacturing a good or service.

If businesses can improve the efficiency of their production factors and lower their costs, it stands to reason that they will be able to produce more goods at a higher quality and possibly at a lower price. This will improve economic growth and raise the standard of living, including through an increase in wages. As a result, households will be able to save and consume more.

However, if the cost of production is higher, there will be stagnant economic growth, wages will drop and this will negatively affect households’ economic decisions as they will be able to save and consume less.