Factors
of production
Definition : They are the economic
resources of capital, enterprise, labour and land
TYPES
OF FACTORS OF PRODUCTION
Land
·
Covers any natural resource
which is used in production
·
Includes what is beneath the
land, what grows naturally on land, what is found in them.
·
The supply of land : The amount
of physical land in existence does not change in time, therefore
·
The mobility of land :
Occupationally mobile, Geographically immobile.
Capital
·
Any human-made goods used to
produce other goods and services
·
Example: Offices, factories,
machinery
·
Capital is also known as
capital goods and producer goods
·
They are not wanted for their
own sake but for what they can produce
Consumer goods are wanted for the satisfaction they provide to their owners
Consumer goods are wanted for the satisfaction they provide to their owners
·
Supply of capital:
o
Increases with time. Every year
some capital goods physical wear out and some become outdates.
o
The total value of the output
of capital produced is referred to as gross investment.
o
Some of the capital goods
produced will be replacing those which have worn out or become obsolete.
o
The value of replacement
capital is called depreciation or capital consumption
o
Net investment is the value of
the extra capital goods made
o
Net investment = Gross
Investment – Depreciation
·
Mobility of capital:
o
It varies according to the type
of capital good.
o
Example: A photocopier is
geographically mobile. A coal mine is geographically immobile as well as
occupationally immobile. An office block is occupationally mobile.
Labour
·
Labour covers all human efforts
– both mental and physical, involved in producing a good.
·
Supply of labour: it is
influenced by 2 factors:
o Number of workers available (which is influenced by:)
§ Size of the population
§ Age structure of the population
§ Retirement age
§ School leaving age
§ Attitude towards working women
o
The number of hours for which
they work (which is influenced by:)
§ Length of an average working day
§ Full time/ Part time
§ Duration of over-time
§ Length of holidays taken
§ Length of sick leaves/ time lost through
sickness & illness
·
Those
people who are working or are seeking work from the labour force(work force)
·
Productivity
: output per worker hour
·
The
mobility of labour: Varies from person to person. The causes for geographical
immobility of labour:
o
Differences
in the price and availability of housing in different areas and countries
o
Family
ties
o
Differences
in educational systems in different areas and countries
o
Lack of
information
o
Restrictions
on movement of workers (visa)
·
The main
cause for occupational immobility: lack of appropriate skills and qualification.
Enterprise
·
It is the
willingness and ability to bear uncertain risks and to make decisions in a
business
·
The supply
of entrepreneurs is influenced by:
o
A good
education system (university degree courses in economics and BST)
o
Lower
taxes on firm’s profits (corporate tax)
o
Reduction
in government regulations.
·
The
mobility of enterprise : It is the most mobile factor of production – both
occupationally and geographically mobile
PAYMENTS TO FACTORS OF
PRODUCTION
Land – Rent
Capital – Interest
Labour – Wages
Entrepreneur – Profit
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What makes Enterprise occupationally mobile
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