Entrepreneurship

0:00- [Instructor] So let's talk a little bit about the factors of production. This is a little bit of a review, but we think of needing land. We think of needing physical capital. I'll actually write, sometimes people just say capital, but I'll write physical capital, and we'll talk about in a second what that is.

0:18We talk about labor and maybe my favorite is entrepreneurship, which is the title of this video, entrepreneurship. Now, let's review 'em and then do a little bit of a deep dive on entrepreneurship. Land is what you imagined it'd be. You need maybe a little bit of the surface of earth to do something interesting.

0:43Now, you don't always need it. You don't always need every one of these factors of production, but in many cases you do, or you put some combinations of these together. Then there's physical capital. Physical capital could be things like factories, supplies, things you need to do in order to be productive.

1:01And actually over here, I have a picture of a restaurant owner, and I had this generated by AI, and she looks like she's about 10' tall. So I have a picture of a 10' tall restaurant owner, who seems to be running a very successful restaurant, and we can see these factors of production at work.

1:18Where's the land? Well, that restaurant is sitting on some land, all the ground over here, this is all land. So that factor of production is definitely going on. What about physical capital? Well, the building, all the tools that these chefs back there are using, the tables, even the cups and the different utensils, these are all capital for this restaurant that this entrepreneur is running.

1:47What about labor? Well, this entrepreneur's hiring people to work at her restaurant, so that is where the labor is. Now, what about entrepreneurship? Well, entrepreneurship, economists define, as putting together all of the other factors of production in unique ways or new combinations to create value, usually with the intent of creating profit.

2:14So you're taking, maybe I'll do land in green, so you put land together with maybe, how would I do capital? Well, in this case, I'll draw a utensil. Obviously, most capital is much more expensive than just a fork. So you do that, and then you also have labor. I'll draw a little happy person right over here as the labor.

2:36And the cost of this, if you put it together in the right combination, so whatever this costs you, maybe I'll do it $$, maybe you now are going to put it together in a way that the market values it at $$$. And so, if we think of a dollar sign as a unit of currency, you're now making an extra dollar sign, which, of course, it isn't, because that entrepreneur put it in a unique way.

3:01Now, there's some important things to keep in mind. Entrepreneurship usually involves some level of risk. What do we mean? Well, let's say that this entrepreneur went and got this land, either bought the land or leased, rented the land, went through the trouble of, not just buying a bunch of forks but building this whole restaurant, making it look nice, that can cost a lotta lotta money.

3:23Hires up this team, it still costs those $$, but maybe for whatever reason, the people aren't really that into that restaurant, and instead of making $$$, it only makes $. Well, in that case, this entrepreneur would be losing money and that business would not last long, and so all that money that she put in might be at risk.

3:43So there is an element of risk to, for example, in this case, starting your own business, which is one form of entrepreneurship. Now, I wanna be clear that entrepreneurship doesn't always involve starting your own business. It might be you're working for another company, and you figure out new ways to put things together so that that company could have a new product, it could have a new service, a new service that no one has ever done in exactly that way.

4:11That can also be a form of entrepreneurship. And maybe in that situation, the company takes on a little bit more risk, but you as a employee might still take on some risk. Now, another word that you sometimes hear is human capital, as opposed to physical capital.

4:27Human capital usually refers to the skills, the development, the experiences that someone has in order to make them have better quality labor or in order to even do certain kinds of labor. You can see human capital in this picture. We can imagine that these chefs back here, maybe they've gone to culinary school, they know how to cook, they have some experiences, so their human capital has been developed in order to be better at this job than let's say, if they hadn't been developed that way.

4:57So I'll leave you there. Entrepreneurship, it's all about putting the other factors of production together in interesting combinations, taking on some risk, and hopefully producing more value than you are taking up, than it's actually costing you. Now, it's usually about a profit motive, and that's what I just drew here, is that you want more dollar signs coming out of the business than going in.

5:21But I'd argue that there's even some cases where it's not profit motivated. For example, Khan Academy, at one point I had to put together a lot of resources, put together a website, some software, some content, my own labor I had to put together, but we are a not-for-profit.

5:39And so our motivation is all about helping you learn and helping the world learn. Our mission is free world class education for anyone, anywhere. So I think it's all about creating more value in the world than you are taking up to do it. And in many cases, that will be expressed as profit.

5:55In other cases, it might be some type of social impact, 'cause I encourage some of y'all to think about trying to do something for the world, and, of course, profit's not necessarily a bad thing either.