Factors of Production Description PDF

Land definition - the physical place where economic activity takes place. Characteristics of Land 1. Free Gift of Nature: Man has to make efforts in order to acquire other factors of production. But to acquire land no human efforts are needed. Land is not the outcome of human labour. Rather, it exis...

Land definition - the physical place where economic activity takes place. Characteristics of Land 1. Free Gift of Nature: Man has to make efforts in order to acquire other factors of production. But to acquire land no human efforts are needed. Land is not the outcome of human labour. Rather, it existed even long before the evolution of man. 2. Fixed Quantity: The total quantity of land does not undergo any change. It is limited and cannot be increased or decreased with human efforts. No alteration can be made in the surface area of land. 3. Land is Permanent: All man-made things are perishable and these may even go out of existence. But land is indestructible. Thus it cannot go out of existence. It is not destructible. 4. Land is a Primary Factor of Production: In any kind of production process, we have to start with land. For example, in industries, it helps to provide raw materials, and in agriculture, crops are produced on land. 5. Land is a Passive Factor of Production: This is because it cannot produce anything by itself. For example, wheat cannot grow on a piece of land automatically. To grow wheat, man has to cultivate land. Labour is an active factor but land is a passive factor of production. 6. Land is Immovable: It cannot be transported from one place to another. For instance, no portion of India’s surface can be transported to some other country. 7. Land has some Original Indestructible Powers: There are some original and indestructible powers of land, which a man cannot destroy. Its fertility may be varied but it cannot be destroyed completely. 8. Land Differs in Fertility: Fertility of land differs on different pieces of land. One piece of land may produce more and the other less. 9. Supply of Land is Inelastic: The demand for a particular commodity makes way for the supply of that commodity, but the supply of land cannot be increased or decreased according to its demand. 10. Land has Many Uses: We can make use of land in many ways. On land, cultivation can be done, factories can be set up, roads can be constructed, buildings can be raised and shipping is possible in the sea and big rivers. Labour (ii) characteristics; b Characteristics of Labour: Labour has the following peculiarities which are explained as under: 1. Labour is Perishable: Labour is more perishable than other factors of production. It means labour cannot be stored. The labour of an unemployed worker is lost forever for that day when he does not work. Labour can neither be postponed nor accumulated for the next day. It will perish. Once time is lost, it is lost forever. 2. Labour cannot be separated from the Labourer: Land and capital can be separated from their owner, but labour cannot he separated from a labourer. Labour and labourer are indispensable for each other. For example, it is not possible to bring the ability of a teacher to teach in the school, leaving the teacher at home. The labour of a teacher can work only if he himself is present in the class. Therefore, labour and labourer cannot be separated from each other. 3. Less Mobility of Labour: As compared to capital and other goods, labour is less mobile. Capital can be easily transported from one place to other, but labour cannot be transported easily from its present place to other places. A labourer is not ready to go too far off places leaving his native place. Therefore, labour has less mobility. 4. Weak Bargaining Power of Labour: The ability of the buyer to purchase goods at the lowest price and the ability of the seller to sell his goods at the highest possible price is called the bargaining power. A labourer sells his labour for wages and an employer purchases labour by paying wages. Labourers have a very weak bargaining power, because their labour cannot be stored and they are poor, ignorant and less organised. Moreover, labour as a class does not have reserves to fall back upon when either there is no work or the wage rate is so low that it is not worth working. Poor labourers have to work for their subsistence. Therefore, the labourers have a weak bargaining power as compared to the employers. 5. Inelastic Supply of labour: The supply of labour is inelastic in a country at a particular time. It means their supply can neither be increased nor decreased if the need demands so. For example, if a country has a scarcity of a particular type of workers, their supply cannot be increased within a day, month or year. Labourers cannot be ‘made to order’ like other goods. The supply of labour can be increased to a limited extent by importing labour from other countries in the short period. The supply of labour depends upon the size of population. Population cannot be increased or decreased quickly. Therefore, the supply of labour is inelastic to a great extent. It cannot be increased or decreased immediately. 6. Labourer is a Human being and not a Machine: Every labourer has his own tastes, habits and feelings. Therefore, labourers cannot be made to work like machines. Labourers cannot work round the clock like machines. After continuous work for a few hours, leisure is essential for them. 7. A Labourer sells his Labour and not Himself: A labourer sells his labour for wages and not himself. ‘The worker sells work but he himself remains his own property’. For example, when we purchase an animal, we become owners of the services as well as the body of that animal. But we cannot become the owner of a labourer in this sense. 8. Increase in Wages may reduce the Supply of Labour: The supply of goods increases, when their prices increase, but the supply of labourers decreases, when their wages are increased. For example, when wages are low, all men, women and children in a labourer’s family have to work to earn their livelihood. But when wage rates are increased, the labourer may work alone and his wife and children may stop working. In this way, the increase in wage rates decreases the supply of labourers. Labourers also work for less hours when they are paid more and hence again their supply decreases. 9. Labour is both the Beginning and the End of Production: The presence of land and capital alone cannot make production. Production can be started only with the help of labour. It means labour is the beginning of production. Goods are produced to satisfy human wants. When we consume them, production comes to an end. Therefore, labour is both the beginning and the end of production. 10. Differences in the Efficiency of Labour: Labourer differs in efficiency. Some labourers are more efficient due to their ability, training and skill, whereas others are less efficient on account of their illiteracy, ignorance, etc. 11. Indirect Demand for Labour: The consumer goods like bread, vegetables, fruit, milk, etc. have direct demand as they satisfy our wants directly. But the demand for labourers is not direct, it is indirect. They are demanded so as to produce other goods, which satisfy our wants. So the demand for labourers depends upon the demand for goods which they help to produce. Therefore, the demand for labourers arises because of their productive capacity to produce other goods. 12. Difficult to find out the Cost of Production of Labour: We can easily calculate the cost of production of a machine. But it is not easy to calculate the cost of production of a labourer i.e., of an advocate, teacher, doctor, etc. If a person becomes an engineer at the age of twenty, it is difficult to find out the total cost on his education, food, clothes, etc. Therefore, it is difficult to calculate the cost of production of a labourer. 13. Labour creates Capital: Capital, which is considered as a separate factor of production is, in fact, the result of the reward for labour. Labour earns wealth by way of production. We know that capital is that portion of wealth which is used to earn income. Therefore, capital is formulated and accumulated by labour. It is evident that labour is more important in the process of production than capital because capital is the result of the working of labour. 14. Labour is an Active Factor of Production: Land and capital are considered as the passive factors of production, because they alone cannot start the production process. Production from land and capital starts only when a man makes efforts. Production begins with the active participation of man. Therefore, labour is an active factor of production. Importance; Employers demand labour because workers are an important part of the production process. Workers use tools and equipment to turn inputs into output. Without workers, employers couldn't produce goods and services and earn profits. (iii) Functions - It supplies the expertise, manpower, and service needed to turn raw materials into finished products and services. In return for their labour, workers receive a wage to buy the goods and services they don't produce themselves. Labour is one of the four factors of production that drives supply. (iv) Productivity; output of goods and services divided by total labour hours employed. For example, 10 workers worked 8 hrs per day has repaired 160 computers per day. Calculate the labour productivity? Total output = 160/80 = 2 computer per labour hrs (v) Efficiency; The efficiency of labour can be raised through training, education and experiences. (vi) Supply - the number of workers willing and able to work, multiplied by the hours they are willing and able to work. It is determined by the wage rate. The higher the wage rate, the more labour is supplied. (vii) Division of labour - The division of labour occurs where production is broken down into many separate tasks. Specialisation - Division of labour leads to specialization which raises the output per person as people become proficient through constant repetition of a task (viii) Advantages and disadvantages of division of labour and specialisation Specialization Advantages Disadvantages A worker only need to be trained in a if you're doing the same task all the limited way thus significantly reducing time the training time that often requires little cognitive skill or brainpower one can become bored and eventually that can damage the labour motivation and can cause lower labour productivity Because workers repeat specific skills Workers may take less pride in their many times, they become very work and the quality of the output may competent and thus work more quickly suffer and efficiently and become experts. The unit cost of production is reduced Other skills that workers may possess and a lower price of the good is passed are not utilized thus limiting creativity on to the customers and causes the company to generate greater profits through a higher volume of sales There is a greater opportunity to use If a key worker is absent, then the machines and automated methods to assembly line could be greatly accomplish tasks interrupted, thus interfering with production target Some workers receive little training so they might not be able to find alternative jobs if they are out of work Division of labour advantages 1. Right person in the right Job: Every worker is assigned the task for which he is best suited. This helps to provide, opportunities for the best utilisation of natural talents as a person performs the job which he likes he gets pleasure in work. 2. Greater Efficiency: Division of labour helps to increase the efficiency of workers due to two reasons. First, every worker is assigned a job that suits his skills, experience, training and aptitude. Right man in the right job leads to higher output. Secondly, due to division of labour, a worker continuously repeats his work. He becomes an expert in performing the job Repetition of the same work improves his dexterity and skills. 3. Better Quality of Work: Division of labour not only increases the quantity of work it also improves the quality of production. Better and modern machines and equipment are used. Better quality products help to increase the goodwill and profits of business. 4. Saving of time: Division of labour helps to avoid waste of time and effort caused by changes from one type of work to another. The worker does not have to shift from one process to another. 5. Economies of large scale production:  Division of labour facilitates mass production. Large scale production provides economies in the use of resources, such as raw materials, labour, tools etc. Optimum use of means of production helps to reduce cost of production. 6. Less learning period: Under division of labour a worker needs to learn only a part of the whole task. Therefore, lesser time and expenditure is involved in training workers. 7. Inventions and Innovations: A worker doing the same task again and again tries to find new and better ways of doing the job. Small and simple parts of a task can easily be done by machines. Thus, division of labour increases scope for inventions and innovations. 8. Less Strain: Division of labour makes tasks small and simple Workers can perform them without much strain and physical tiredness is reduced. Less skilled labour is required to perform the divided and sub-divided tasks. 9. Wider Market: Division of labour makes available cheaper goods of a wide variety. As a result demand for goods and services increases. 10. Benefits to society: Society is benefited due to (a) reduced cost on account of large scale production (b) higher productivity which leads to economic growth (c) employment of unskilled workers and (d) better quality of goods and services for consumers. Disadvantages of division of labour 1. Monotony or repetition In division of labour, a worker performs the same job on daily basis, the job therefore becomes monotonous and boring to him and this may lead to loss of interest in job being done. 2. Decline in craftsmanship As a result of the use of machines in division of labour, workers may no longer make use of their skills in the production of goods, rather, they become machine-minded. 3. Reduction in employment opportunities In the division of labour, machines are usually used with few workers. This tends to reduce the level of employment among the workers. 4. Problem of mobility of labour Under division of labour, a worker stays on a single job for a long time and this makes it difficult for him to move to other jobs. 5. Problem from increased interdependence Division of labour has meant that workers and industries may have to depend on one other before production can take place. Absence of such workers or industry may result in the closure of the entire production. Capital (i) Definition - man-made goods which are used in further production of wealth (ii) Characteristics – 1. Capital is a Passive Factor: It is a passive factor of production. This is so because it becomes ineffective without co- operation of labour. 2. Capital is Man Made: It is created by man. Its supply is increased or diminished by the efforts of man. According to John Stuart Mill, capital is the “accumulated product of past labour destined for the production of future wealth”, i.e., when human labour is applied to natural resources, then capital items are generated. 3. Capital is not an Indispensable Factor of Production: Production can be possible even without capital, whereas, land and labour are the original and indispensable factors of production. 4. Capital has High Mobility: Amongst all the factors of production, capital has the highest mobility. The land is immobile, labour has low mobility, whereas ‘capital’ has both ‘place mobility’ and ‘occupational mobility’. 5. Capital is Elastic: Supply of capital is elastic and can be adjusted easily and quickly according to demand. On the other hand, the supply of land is fixed and the supply of labour can neither be increased nor decreased quickly. 6. Capital Depreciates: If capital is used again and again it depreciates. For example, if any machine is used for a considerable period, then it may not be suitable for further use due to depreciation. 7. Capital is Productive: Production can be increased to a large extent if workers work with adequate capital. 8. Capital is Temporary in Nature: Capital has to be reproduced and replenished from time to time. 9. Capital is not a Gift of Nature: Production of capital involves some cost as it is not a natural gift, and is not freely available. It is earned with hard labour and sacrifice. 10. Capital is Prospective: Capital is considered much prospective, as the accumulation of capital yields an income. 11. Capital is the Result of Past Savings: In some cases when the consumption of capital good is not simultaneous with the production, it becomes a saving, e.g., when a farmer does not consume or sell a part of his crop production, it can be used as seeds in the future. Types Capital goods Human capital Financial capital (iv) Accumulation of capital This is the process of acquiring additional capital stock which is used in the productive process. The more assets one acquires, the wealthier one gets. (v) Importance as a substitute for labour – If higher quantities lead to a situation where a unit increase in capital allows a savings of more labour than before, then the firm wants to substitute capital for labour when quantity increases. , The characteristics of an entrepreneur Entrepreneurs need a number of characteristics in order to be successful. These include being: Hardworking – when starting a new business, it is normal to work long hours. The entrepreneur will also need to carry out a variety of tasks. Organised – the entrepreneur will need to keep on top of all the day-to-day tasks as well as planning for the future. They will have to arrange all of the finances and meet deadlines. Innovative – the entrepreneur will have to keep coming up with new ideas to keep the customers happy. Willing to take a risk – starting a new business comes with a lot of risk, an entrepreneur has to be willing to risk money, time and possibly give up their old job. Objectives of an entrepreneur Entrepreneurs may have a number of reasons for starting their own business. These could be: to be their own boss and have the independence and freedom to make their own decisions to have more flexibility with their working hours to follow an interest or hobby such as opening a book shop or a football memorabilia website to increase their income and improve their quality of life to fill a gap in the market to escape a job they are unhappy with to fulfil an ethical or social goal