Economics – The basic economic problem - Factors of production | e-Consult
The basic economic problem - Factors of production (1 questions)
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(a) A change in consumer tastes can significantly affect the rewards to factors of production in several ways.
- Land: If consumer tastes shift towards organic food, demand for land suitable for organic farming will increase. This will lead to higher rents for this type of land.
- Labour: Increased demand for organic food will increase the demand for labour in the organic farming sector. This will lead to higher wages for organic farmers and farm workers.
- Capital: Businesses investing in organic farming equipment and technologies will see increased demand for capital goods. This will lead to higher returns on investment (profit) for businesses in this sector.
- Entrepreneurship: The increased demand for organic food creates opportunities for entrepreneurs to start new businesses in the organic food sector (e.g., organic food processing, organic food retail). This will lead to higher profits for these entrepreneurs.
Conversely, if consumer tastes shift away from a particular product, the rewards to the factors of production used to produce that product will fall.