3.1 - Economics Concepts

From Wikibooks, open books for an open world
Jump to: navigation, search


Humans have needs for things like food, shelter, and utilities, and desires for things beyond these basics, like education, health care, and entertainment. Modern civilization is complex enough that it is not efficient to try and do everything for yourself. So people generally specialize in a particular task, or work for an organization which is specialized. They then trade for the things they need and want, but do not supply for themselves. The cost of these things is high enough that most people need to spend much of their time working in order to pay for them.


Exponential Growth[edit]

This is also known as Compound Interest, and in economic terms it refers to a return whose size is proportional to the original amount. Since the original amount increases by the growth in the previous time intervals, the growth rate in absolute terms increases constantly, while the growth as a rate per time stays the same. Exponential terms appear in formulas in many other fields besides economics, but here they have a strong effect on human goals.

The cost of many goods is high because the output quantity is linear with the input effort. For example, in construction, it takes about the same amount of work to build the next house as it did the last house. If you plant some acorns, however, you can eventually end up with an oak forest as a result, which is an exponential result from a fixed amount of work. This is because oak trees are living things which both expand themselves and make copies. Applying that kind of growth to automated production systems can fundamentally alter the nature of human work. Thus a goal for a modern starter kit is that it can grow in this fashion.


Categories of Production[edit]

Unless you happen to enjoy watching a complicated factory operate as entertainment, a Seed Factory would be built to fill some economic purpose, typically end products and services that people want. Not all the output of the factory can go to end products. We can divide the output into Internal Production, for use by the factory itself, and External Production, destined for end users or for sale. Internal production can further be divided into Maintenance, items needed to sustain operations like power and repair parts, and Growth, items which are used for expansion. Whatever part of production not used for maintenance and growth is available to end users. It is a matter of choice whether to maximize growth, maximize end products, or a mix of the two. The portion assigned to external production can be divided into Private Production, which is destined for the factory owners, and Market Production, which is destined for sale.


Production Margins[edit]

In business finance, operating margin is operating income divided by operating revenues, usually expressed as a percentage. For a Seed Factory, we can define Production Margins in units other than money. The External Margin is the ratio of external production to total production, which can be measured by energy, mass, parts count, or other units. The Total Margin adds the portion used for growth to the external margin.


Operating Costs[edit]

An ideal Seed Factory would not only make all its own parts, but grow and expand its range of outputs without supplies from outside its own land area. Thus all growth would be "free" in terms of input costs, and the traditional operating margin would be 100%. This goal most likely cannot be reached, especially starting from current technology. But to the extent that it does, it reduces the start-up and later production costs of the mature factory into which it grows. For example, assume the Seed Factory starts at 10% the size of the final factory and initially can produce 60% of the parts for expansion, and then grows to producing 90% of of its parts at full size. Then the capital cost will be about 75% lower than building the mature factory directly. The higher ratio of outputs to capital cost is a strong economic reason to develop Seed Factories.


Productivity[edit]

In economics, Productivity is defined as the value of the outputs divided by the hours of labor required to make them. An ideal automated factory would only need a human to press "Make" on a computer screen, and then wait for the product to be finished. Therefore productivity would be extremely high. Automation and robotics is not at that level yet, but a Seed Factory design can be optimized for existing automation, and upgraded over time as new software and hardware is developed. An example of such new technology is the Google self-driving car, which could be applied to the robotic vehicles for the Seed Factory. Because the various production processes are close to each other and under common control, more automation can be used than with geographically separated special purpose factories. The increased output from automation relative to human labor is another economic reason to develop Seed Factories.

Besides the standard measure of productivity in terms of value, we can also apply the less common physical measures of output, such as mass, relative to labor required. The Productivity Ratio, PR, is how much more a self-expanding and automated factory can output compared to a conventional factory that does not have those features. For a factory which makes much of its own capital equipment, we can define a System Productivity measure which includes the embodied labor in the equipment. Thus system productivity = (total output)/(direct production labor + capital equipment labor).