David Ricardo (1772-1823)

• British: Classical

• Successful business/financier

• Theories:

– Comparative Advantage

– Anti-protectionism

– Book: Principles of Political Economy and Taxation

• Value Theory

1

Purpose of efficiency

• To improve….

–QUALITY

• To keep prices….

– LOW

• To eliminate…

–WASTE

What are a company’s inputs?

• Capital invested in the business.

• Expenses

• Costs

• Specifics: – Labor, utilities, equipment, building, insurance,

marketing/advertising, rent, legal fees, taxes.

What is the term for what a business produces?

• OUTPUT

Total cost =

• Sum of all factors of production when making goods.

AVERAGE COST

• Sum of all factors of production when making one unit of a good.

Businesses may become MORE efficient in two basic ways

[INPUT/OUTPUT]:

• KEEP OUTPUT STEADY AND….

–REDUCE INPUTS

• KEEP INPUT STEADY AND…

–INCREASE OUTPUT

SPECIALIZATION

• --What is the term for concentrating on the product or service that a business/individual does best?

GEOGRAPHIC SPECIALIZATION

• When a certain region has an advantage is production.

OVERSPECIALIZATION

• When a business goes to the extreme in specializing, which actually makes it less efficient.

Elements of mass production

• DIVISION OF LABOR

• STANDARDIZED PARTS

• ASSEMBLY LINE

PROTECTIONISM

• The theory that domestic manufactures need government protection against foreign competition.

FREE TRADE

• Result of no restrictions or penalties upon the trading of goods.

What are the typical expenses for a business?

• Labor -- wages and health insurance

• Property –

• Utilities

• Equipment

• Insurance

• Taxes, fees

• Cost of goods sold --