The Theory of production explains the principles by which a business firm decides how much of

each commodity that it sells (its “outputs” or “products”) it will produce. And how much of each
kind of labor, raw material, fixed capital good, etc., that it employs (its “inputs” or “factors of
production”) it will use. Economics, models, and theories are not dynamic; they are fixed to a period.
So, economists base their models on the short run, medium run or long run. The difference in these
time frames is the ability to change the factors of production. For example, in the short run, its
impossible set up a new factory, but its more plausible to hire a new worker. It shows that in a period,
current output can change only so much. While in the long run, you can make many more changes. In
this post, we will analyze the Theory of Production in the Short-Run.

Theory of Production: Short-Run Analysis

The Short-Run is the period in which at least one factor of production is considered fixed. Usually
capital is considered constant in the short-run.

In the Long-Run, all factors of production are variable, while in the very long-run all factors of
production are variable and research and development is possible.

Law of Diminishing Marginal Returns

If more and more of a variable Factor of Production is used in a combination with a fixed factor of
production, marginal product, then average product will eventually decline. The law of diminishing
marginal returns determines the behavior of output in the short-run. Think of a pizzeria, with tables,
chairs, and ovens (fixed factor of production). With no workers, the output is zero, with one worker
the output is ‘x’ units. The worker takes orders, makes pizzas, cleans tables and serves the bill. If
there are two workers, the second worker can do the same work as the first, and the output will be 2x
units. They can specialize and further increase output.

 The output will increase at an increasing rate till L1. Therefore the marginal product is rising till
L1.
 Adding extra workers increases total output, but at a decreasing rate, more workers contribute
less each, and the marginal product begins to fall (L1 to L2). Hiring more workers results in each
new worker adding less to the output.
 After L2, there is too much labor for the available capital, workers get in each other’s way, and
each contribution of everyone new worker is negative.
 No firms hire beyond L2; too much labor to capital, and less than L1; too much capital to labor.

Average Product (AP)

Total Product / Variable Factor of Production. Average Product is maximum at the point that Total
Product is the steepest.

Marginal Product (MP)

Marginal Product is the change in the total product as a result of changing the variable factor of
production by 1 unit. Ex: When one more chef is added, and production increases to x units when the
second worker has hired the output increases by more than 2x units.

If Marginal Product > Average Product, then Average Product will rise

If Marginal Product < Average Product, then Average Product will drop

If Marginal Product = Average Product, then Average Product will be at maximum

For example: If you think of scores, in Jack’s sixth test (marginal), he gets a score higher than his
average, then his average will increase. If in the next test (marginal) he gets a score lower than his
average, then his average will drop. If he gets a score that’s the same as his average, then his average
won’t change.

What Is Short-Run Production?

Companies have one primary goal of existence. No, it's not to bring you the latest phone or
sandwich or film, and it's certainly not to make you happy, keep you healthy, or save the planet. I'm
afraid it's much more cold-hearted than that. Companies, from the smallest mom-and-pop shop to
the massive behemoths on Wall Street, exist to make money. Now, they may have all those other
objectives in mind, but they are all means to the end of making money.
In order to do this, companies have to be realistic. In economics, we refer to this as paying attention
to short-run production. Short-run production refers to production that can be completed given the
fact that at least one factor of production is fixed. More often than not, this refers to a firm's physical
ability to produce, but it doesn't always have to be that. Another way you may sometimes see this
concept explained is that firms consider short-run production to be the production necessary to fulfill
current contracts.
Now, a contract doesn't have to be some really formal document. Far from it. Did you get a coffee
this morning? In the eyes of an economist, you entered a contract with the coffee shop to provide
you with caffeine, and probably some cream and sugar to boot. In fact, short-run production for
companies like coffee shops is often just the production they can do without expanding operations.

Determining Short-Run Production

In order to really use knowledge of short-run production, it would probably be advantageous for a
firm to be able to understand what comprises its short-run production. As you'd imagine, this is not a
time for the researchers or the salesmen, since they all deal with factors that cannot yet be realized.
Instead, we are interested in what is on the table. Let's say that instead of just stopping at that coffee
shop this morning, you owned it. In a given morning, you can hope to serve a few hundred patrons.
Therefore, those few hundred patrons are your short-run production. Notice that we are only talking
about your one coffee shop. If you decide to expand operations, that drifts out of the realm of short
run.
Now, what about the exasperated guy who walks in every morning, huffs and puffs about the line,
and then leaves? Obviously, you didn't serve him, but if you had more people working, maybe you
could. While your physical space is limited, your ability to do things to increase your efficiency still
exist, to a point. Go ahead; hire another barista or buy another espresso machine. That will help
your efficiency and help that few hundred increase. But don't forget the law of diminishing returns,
which says that too much added labor, or any other resource for that matter, can be a bad thing for
output. If you were to hire ten baristas to work the morning shift, they would be tripping over
themselves, and the four shiny espresso machines may end up being cracked on the floor.

Elastic demand is when price or other factors have a big effect on the quantity
consumers want to buy. You'll see it most often when consumers respond to
price changes. If the price goes down just a little, they'll buy a lot more. If prices
rise just a bit, they'll stop buying as much and wait for them to return to normal.
Price is one of the five determinants of demand.

If a good or service has elastic demand, it means consumers will do a lot of

comparison shopping. They do this when they aren't desperate to have it or they
don't need it every day. They'll also comparison shop when there are a lot of
other similar choices.

The law of demand guides the relationship between price and the quantity
bought. It states that the quantity purchased has an inverse relationship with
price. When prices rise, people buy less. The elasticity of demand tells you how
much the amount bought decreases when the price increases.

Inelastic demand in economics is when people buy about the same amount
whether the price drops or rises. That happens with things people must have, like
gasoline. Drivers must purchase the same amount even when the price
increases. Likewise, they don't buy much more even if the price drops.

Inelastic demand is one of the three types of demand elasticity. It describes how
much demand changes when the price does. The other two are:

1. Elastic demand: When the quantity demanded changes more than the
price does.
2. Unit elastic demand: When the quantity demanded changes the
same as the price.

Definition: A perfectly elastic demand curve is represented by a

straight horizontal line and shows that the market demand for a product
is directly tied to the price. In fact, the demand is infinite at a specific
 price. Thus, a change in price would eliminate all demand for the
product.

3. What Does Perfectly Elastic

Demand Mean?
4. What is the definition of perfectly elastic demand? In a market that
has perfectly elastic demand for a product, even a small change in price
causes an infinite change in the quantity demanded. Therefore, in a
perfectly elastic demand, an infinite number of quantities demanded are
associated with a given level of price.
5. When the price changes, the quantities change to infinity. The price may
change if consumers have access to a large number of substitute goods
that can meet their needs or if suppliers have a large number of
substitute goods that they can produce. The same is true for products
with a perfectly elastic supply curves.
6. Here’s an example of both curves.

7.
hat are the important values for price elasticity of demand?

We use the word "coefficient" to describe the values for price elasticity of demand

1. If Ped = 0 demand is perfectly inelastic - demand does not change at all

when the price changes – the demand curve will be vertical.
2. If Ped is between 0 and 1 (i.e. the % change in demand from A to B is
smaller than the percentage change in price), then demand is inelastic.
3. If Ped = 1 (i.e. the % change in demand is exactly the same as the %
change in price), then demand is unit elastic. A 15% rise in price would
lead to a 15% contraction in demand leaving total spending the same at
each price level.
4. If Ped > 1, then demand responds more than proportionately to a change
in price i.e. demand is elastic. For example if a 10% increase in the price
of a good leads to a 30% drop in demand. The price elasticity of demand
for this price change is –3

Inelastic demand (Ped <1)

Inelastic demand

Elastic demand (Ped >1)

Price elastic demand

Perfectly inelastic demand (Ped = zero)

Zero price elasticity

Perfectly elastic demand

Perfectly elastic demand

Unitary price elasticity of demand

Unitary price elasticity

Evaluation
Human Trafficking
Trafficking in persons is a serious crime and a grave violation of human rights. Every year,
thousands of men, women and children fall into the hands of traffickers, in their own countries
and abroad. Almost every country in the world is affected by trafficking, whether as a country of
origin, transit or destination for victims. UNODC, as guardian of the United Nations Convention
against Transnational Organized Crime (UNTOC) and the Protocols thereto, assists States in their
efforts to implement the Protocol to Prevent, Suppress and Punish Trafficking in
Persons (Trafficking in Persons Protocol).
What is Human Trafficking?
Human Trafficking FAQs
UNODC's Response to Human Trafficking
UN Voluntary Trust Fund for Victims of Human Trafficking
Further Information
What is Human Trafficking?
Article 3, paragraph (a) of the Protocol to Prevent, Suppress and Punish Trafficking in
Persons defines Trafficking in Persons as the recruitment, transportation, transfer, harbouring
or receipt of persons, by means of the threat or use of force or other forms of coercion, of
abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability or of
the giving or receiving of payments or benefits to achieve the consent of a person having
control over another person, for the purpose of exploitation. Exploitation shall include, at a
minimum, the exploitation of the prostitution of others or other forms of sexual exploitation,
forced labour or services, slavery or practices similar to slavery, servitude or the removal of
organs

Elements Of Human Trafficking

 On the basis of
the definition given in the Trafficking in Persons Protocol, it is evident that trafficking in persons
has three constituent elements;

The Act (What is done)

Recruitment, transportation, transfer, harbouring or receipt of persons

The Means (How it is done)

Threat or use of force, coercion, abduction, fraud, deception, abuse of power or vulnerability, or
giving payments or benefits to a person in control of the victim

The Purpose (Why it is done)

For the purpose of exploitation, which includes exploiting the prostitution of others, sexual
exploitation, forced labour, slavery or similar practices and the removal of organs.

To ascertain whether a particular circumstance constitutes trafficking in persons, consider the

definition of trafficking in the Trafficking in Persons Protocol and the constituent elements of the
offense, as defined by relevant domestic legislation.

Criminalization Of Human Trafficking

The definition contained in article 3 of the Trafficking in Persons Protocol is meant to provide
consistency and consensus around the world on the phenomenon of trafficking in persons. Article
5 therefore requires that the conduct set out in article 3 be criminalized in domestic legislation.
Domestic legislation does not need to follow the language of the Trafficking in Persons Protocol
precisely, but should be adapted in accordance with domestic legal systems to give effect to the
concepts contained in the Protocol.
In addition to the criminalization of trafficking, the Trafficking in Persons Protocol requires
criminalization also of:

· Attempts to commit a trafficking offence

· Participation as an accomplice in such an offence

· Organizing or directing others to commit trafficking.

National legislation should adopt the broad definition of trafficking prescribed in the Protocol. The
legislative definition should be dynamic and flexible so as to empower the legislative framework
to respond effectively to trafficking which:

· Occurs both across borders and within a country (not just cross-border)

· Is for a range of exploitative purposes (not just sexual exploitation)

· Victimizes children, women and men (Not just women, or adults, but also men and
children)

· Takes place with or without the involvement of organized crime groups.

For a checklist of Criminalization under the Protocol, click here.

For more resources, visit our Publications page.
To see how human trafficking is different to migrant smuggling, click here.
Human Trafficking FAQs
See all FAQs on Trafficking in persons compiled here: Human Trafficking FAQs.
Top of Page
UNODC's Response to Human Trafficking
UNODC offers practical help to States, not only helping to draft laws and create comprehensive
national anti-trafficking strategies but also assisting with resources to implement them. States
receive specialized assistance including the development of local capacity and expertise, as well
as practical tools to encourage cross-border cooperation in investigations and prosecutions.
The adoption in 2000 by the United Nations General Assembly of the Protocol to Prevent,
Suppress and Punish Trafficking In Persons, Especially Women and Children marked a significant
milestone in international efforts to stop the trade in people. As the guardian of the Protocol,
UNODC addresses human trafficking issues through its Global Programme against Trafficking in
Persons. A vast majority of States have now signed and ratified the Protocol. But translating it
into reality remains problematic. Very few criminals are convicted and most victims are probably
never identified or assisted.
For an overview of UNODC's work in the human trafficking field and the real-life complexities
faced by people globally every day, please click on the following links:
Prevention of trafficking in persons
Protection of victims of human trafficking
Prosecution of trafficking offenders

Having worked on these issues since the late 1990s, UNODC has issued a comprehensive
strategy setting out the complementary nature of UNODC's work in preventing and combating
both human trafficking and migrant smuggling, and defining the immediate priorities for
UNODC's future action and engagement on these crimes. The new strategy
complements UNODC's Thematic Programme Against Transnational Organized Crime And Illicit
Trafficking (2011-2013).
As the guardian of the Organized Crime Convention and its Protocols on Trafficking in Persons
and Smuggling of Migrants, UNODC plays a leading role in strengthening and coordinating the
criminal justice response to both human trafficking and smuggling of migrants.
UNODC's strategic approach to combating trafficking in persons and the smuggling of migrants is
founded in the full and effective implementation of the Protocols, and can be best understood as
having three interdependent and complementary components:
(1) research and awareness raising;
(2) promotion of the Protocols and capacity-building; and,
(3) the strengthening of partnerships and coordination.

With regards to research and awareness-raising, UNODC will publish the next Global Report on
Trafficking in Persons in December 2012, and biennially thereafter. UNODC also
produces research and issue papers on trafficking in persons and migrant smuggling and
engages in both broad and targeted awareness-raising on these issues, notably through the Blue
Heart Campaign against Human Trafficking. UNODC's normative work on promoting the Protocols
and capacity-building engages with Member States and working-level practitioners in providing
legislative assistance, strategic planning and policy development, technical assistance for
strengthened criminal justice responses, and protection and support to victims of trafficking in
persons and smuggled migrants. Finally, UNODC initiatives on strengthening partnerships and
coordination occur through its participation in inter-agency groups such
as ICAT, UN.GIFT and GMG and its management of the UN Voluntary Trust Fund for Victims of
Human Trafficking.