Practise classifying land, labour, capital and enterprise and analysing how skills, technology, factor rewards, specialisation and entrepreneurial decisions affect production.
The nature of a typical car assembly plant has changed. The industry has fewer firms, operates on larger sites and has more automated machinery.
How is this change most likely to have affected the relative use of factors of production in the industry?
increased relative use
decreased relative use
capital and enterprise
labour and land
enterprise and labour
land and capital
labour and land
capital and enterprise
land and capital
enterprise and labour
Which term assumes the existence of 'qualities, knowledge and skills' that allow an individual to be more productive?
enterprise investment
human capital
mechanisation
specialisation
What do economists regard as the reward for taking risks and organising production?
enterprise
interest
wages
profit
What will encourage a higher degree of division of labour?
firms wishing for a greater level of self-sufficiency
firms wishing to increase their flexibility in production
firms wishing to raise their level of productivity
firms wishing to reduce their level of risk
Latvia becomes a banking capital between the European Union's (EU's) east and west
Latvia regards itself as a financial bridge between Europe's east and west. Since the Soviet Union's collapse in 1991, Latvia (population 2.2 million) joined the EU (population 510 million) in 2004. It has since built itself into a banking centre for people from all parts of Europe and many other parts of the world, although its reputation as a financial centre has been growing since 1988 when two entrepreneurs founded a private bank, Parex Bank, in the capital, Riga.
In the early years of the 21st century, favourable credit conditions in Latvia contributed to an economic boom, but in the global financial crisis of 2007-2008 Parex Bank, by then Latvia's second biggest bank, needed government assistance and was nationalised.
The financial crisis caused Latvia's annual inflation rate to rise rapidly to in May 2008, which was significantly higher than its average annual inflation rate of for the period 1998-2018.
In 2008, the Latvian government decided to substantially reduce the size of the budget deficit, in an attempt to reduce the relatively high rate of inflation, through a series of fiscal measures such as increasing taxation and reducing public spending.
Latvia emerged from the global financial crisis to become the EU's fastest-growing economy. The intention was that Latvia would eventually join the EU's common currency (the euro). Fig. 1.1 below shows the exchange rate of Latvian Lats (the country's former currency) per euro from 2007 to 2013.
Fig. 1.1 Exchange rate of Latvian Lats per euro, 2007-2013
In January 2014, Latvia did join the euro and this was welcomed by business leaders and economists in Latvia, stating that it would improve Latvia's credit rating and attract foreign investors. The governor of Latvia's central bank said: "The euro brings stability and certainty, definitely attracting investment."
However, not everybody in Latvia supported the introduction of the euro. Many people thought that Latvia would lose a certain amount of economic independence and that it would lead to an increase in prices and taxes.
Sources: Adapted from The Financial Times 20 February 2018
Latvijas Banka, accessed October 2018
Describe the functions of an entrepreneur in the production process.