ECONOMICS NOTES S.Y.J.

C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

CHAPTER NO . 6

FACTORS OF PRODUCTION
Q.1.(A) FILL IN THE BLANKS WITH APPROPRIATE ALTERNATIVES GIVEN IN THE
BRACKETS

1. Reward paid for capital is known as _______.

[profit, rent, wage, interest]
2. Land is subject to _______returns.
[increasing, constant, diminishing, negative]
3. _______ is regarded as primary factor of production.
[land, labour, capital, entrepreneur]
4. Capital is a _______ factor of production.
[real, artificial, natural, free]
5. Land is a free gift of _______.
[nature, human, foreign, nation]
6. _______ is a leader of organization.
[A capitalist, A consumer, A seller, An oragnizer]
7. Labour is the most _______ factor of production.
[expensive, active, passive, useless]
8. Land is _______.
[homogeneous, heterogeneous, unlimited, reproductive]
9. ______ is a reward for risk bearing.
[profit, rent, wages, interest]
10. Losses occurring due to the risk of _____ are actually being borne by the entrepreneur.

[theft, fire, accident, changes in demand and supply conditions]

11. ______ is the reward of capital.

[rent, wages, interest, profit]
12. ____ capital is durable.
[fixed, variable, circulating, working]
13. _____ is geographically immobile.
[land, labour, capital, entrepreneur]
14. Supply of land is _____ for the society as a whole.
[perfectly inelastic, relatively elastic, relatively inelastic, perfectly elastic]
15. _______ capital has specific use.
[floating, fixed, sunk, money]
16. ______ is a man-made factor of production.
[land, labour, capital, organiser]
17. ________ capital is only used once in production.
[fixed, specialized, variable, real]
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

Q.1.(B) MATCH THE PAIRS

Group ‘A’ Group ‘B’

1) Production a) Profit
2) Land b) Capital of industry
3) Labour c) Creating utility
4) Reward of capital d) Rent
5) Reward of entrepreneur e) Interest
f) wages

Ans: (1 - c), (2 - d), (3 - f), (4 - e), (5 - a)

Group ‘A’ Group ‘B’

1) land a) backward sloping
2) labour b) part of wealth
3) capital c) natural factor
4) entrepreneur d) perishable factor
5) supply curve of labour e) innovation
f) sunk capital

Ans: (1 - c), (2 - d), (3 - b), (4 - e), (5 - a)

Group ‘A’ Group ‘B’

1) fixed capital a) Sunk capital
2) factors of production b) Uncertainty
3) human capital c) Factory building
4) Xerox machine d) Labour
5) Share and debentures e) Inputs
6) Non- insurable risk f) Financial capital
g) Floating capital

Ans: (1 - c), (2 - e), (3 - d), (4 - a), (5 - f), (6 - b)

ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

Group ‘A’ Group ‘B’

1) Active factor a) Capital
2) Zero supply price b) Labour
3) Service of housewife c) Joseph Schumpeter
4) Productive factor d) Production
5) Innovation function e) Land
6) Insurable risk f) Accident
g) Not labour

Ans: (1 - b), (2 - e), (3 - g), (4 - a), (5 - c), (6 - f)

Q.1. (C) STATE WHETHER THE GIVEN STATEMENTS ARE TRUE OR FALSE

1) Demand for labour is direct demand.

2) Labour and labourer are inseparable.
3) Labour cannot be stored.
4) Capital is a natural factor of production.
5) Land is a free gift of nature.
6) Labour is a passive factor of production.
7) A teacher is a labourer.
8) A housewife’s service is not labour.
9) An entrepreneur’s reward is always positive.
10) Land has no social cost so it has no supply price.
11) Capital involves social cost.
12) Service of a maid servant is not labour.
13) Reward of an entrepreneur can be positive, negative or zero.
14) Capital is a produced means of production.
15) Profit cannot be zero.
16) Land has derived demand.
17) Supply of land is elastic.
18) Land has supply price.
19) Land differs in fertility.
20) Labour is homogeneous.
21) Capital is a passive factor of production.
22) Land is geographically immobile.
23) Capital has less mobility compared to land and labour.
24) An entrepreneur earns profit for risk and uncertainty bearing.
25) Capital is productive factor of production.

Ans: True: 2, 3, 5, 7, 8, 10, 11, 13, 14, 15, 19, 21, 22, 24, 25
False: 1, 4, 6, 9, 12, 15, 17, 18, 20, 23
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

Q.2. (A) DEFINE OR EXPLAIN THE FOLLOWING CONCEPTS

1. Entrepreneur

Ans:

a) According to F. H. Knight, “An entrepreneur is a person who performs dual function of risk taking
and control.”
b) An entrepreneur is an economic agent who combines different factors of production like land, labour
and capital, in the right proportion and starts the process of production.
c) He takes the economic decisions as what to produce, what method of production to adopt, how much
to produce, etc. he also bears different risks and uncertainties of business.
d) Thus, he is the pioneer, organizer, controller, risk-taker of an enterprise.

2. Variable capital

Ans:

a) Variable capital refers to the one time use of capital to produce goods and services. It is also referred
to as circulating or working capital.
b) Variable capital is directly absorbed into the finished goods. Therefore, variable capital vanes with
production.
c) Variable capital gets exhausted after one use. For example: fuel, raw material, etc.

3. Labour

Ans:

a) Alfred Marshall defines labour as, “any exertion of mind or body undergone partly or wholly with a
view to earning some goods other than the pleasure, derived directly from the work”.
b) Thus, labour includes all human resources in the form of mental or physical exertion.
c) It is also defined as the economic activity of man with head and hand to create or add utility.
d) It is measured in time units expressed in terms of man’s work over an hour, a day, a week or a month.
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

4. Land

Ans:

a) Land is primary, natural and original factor of production. It is a free gift of nature.
b) According to Dr. Alfred Marshall, “By land we mean not merely land in the strict sense of the word,
but the whole of materials and forces which nature gives freely for man’s aid in land, water, air, light
and heat.”
c) Thus, land includes all those resources available on the surface (soil), below the surface (iron ore) and
above the surface (sunshine) of the earth.

5. Capital

Ans:

a) According to Alfred Marshall, “capital consists of those kinds of wealth which yield income.”
b) In the words of Bohm Bawerk, “capital is the produced means of production.”
c) Thus, capital can be defined as that part of wealth which is used for production of different goods and
services.
d) Capital is a part of wealth used for the production of further wealth.

Q.2. (B) GIVE REASONS OR EXPLAIN THE FOLLOWING STATEMENTS

1. The supply of land is inelastic. OR the supply of land is fixed.

Ans: Reasons:

a) The total land surface is determined by nature and is fixed in supply.

b) Man cannot increase or decrease the total volume of land. He can only try to improve the quality of
land.
c) Land is a free gift of nature. It is not created with human efforts, so the supply price of land is zero
from the society’s point of view.
d) The availability of land at any time is fixed. Thus, supply of land is perfectly inelastic.

2. Labour cannot be stored OR labour is highly perishable factor of production.

Ans. Reasons:

a) Human efforts, physical or mental cannot be stored.

b) If a worker is absent for a day, the day’s labour is gone.
c) Labour that is lost today is lost forever. It is highly perishable. It cannot be stored for future use.
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

3. Raw material is considered as a variable capital.

Ans. Reasons:

a) Variable capital is that type of capital which is used in a production process only once.
b) Raw material is a variable capital because it is used only once in the process of production. It is
recurring in nature.
c) When raw material is used in the production process, it is converted in finished products.
d) E.g, in sugar industry, sugarcane is raw material. It is converted into sugar, i.e. finished product.

4. The entrepreneur is called a leader of the organization.

Ans. Reasons:

a) An entrepreneur is one who organizes the factors of production and takes necessary actions to run a
business.
b) He is the initiator, organizer, controller and risk bearer of a business.
c) As a leader, an entrepreneur takes all major decisions like what to produce, how to produce, how
much to produce etc. by using his own skills.
d) He supervises the entire production process by himself.
e) As a leader, he controls the activities of his oragnisation.

Q.3 .(A) DISTINGUISH BETWEEN

1) Fixed capital and Variable capital

Fixed capital or Block capital Variable capital (Fluctuating capital)

1) It is used in the production process again
and again.
2) It remains fixed irrespective of output.
3) It is used indirectly in producing goods.
4) It does not change its form during
production.
5) e.g. machinery, factory, building, etc.
1) It is used only once in the production
process.
2) It varies directly with the output.
3) It is used directly in producing goods.
4) It changes its form completely during
production
5) e.g. raw material, power, fuel, etc.

2) Insurable risk and Non-insurable risk

Insurable risk or visible risk Non-insurable risk (Uncertainties) or Invisible risk

i. Insurable risks are those risks which can be
insured and covered by insurance
company.
ii. They occur due to natural calamities like
earthquakes, floods, famines, fire, thefts,
etc.
iii. These risks are predictable.
iv. An entrepreneur is financially secured as
the loss is borne by the insurance company.
i. Non-insurable risks are those risks which
cannot be insured and covered by insurance
company.
ii. They occur due to changes in government
policy, introduction of new technology,
changes in demand and supply etc.
iii. These risks cannot be predicted and no
insurance company bears them.
iv. The entrepreneur is financially unsecured
as the loss is borne by the entrepreneur.
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).
3) Land and Capital
Land
i. Land is a natural resource.
ii. Land is a free gift of nature.
iii. Supply of land is fixed. It is perfectly iii.
inelastic.
iv. Land is physically or geographically
immobile. But is occupationally mobile.
v. Land is permanent and indestructible.
vi. Land is a heterogeneous factor because
fertility depends from place to place.
4) Entrepreneur and Labour
Entrepreneur
i. Entrepreneur initiates and completes the
process of production.
ii. Entrepreneur pays wages.
iii. Entrepreneur shoulders risk and at times
even suffers loss.
iv. The reward for the entrepreneur may even
be negative.
v. Entrepreneur makes decisions about
production.
vi. Entrepreneur is the hiring factor.
vii. Entrepreneur directs labour.
viii. Entrepreneur has organizational capacity. viii. The productivity of labour is generally
Capital
i. Capital is a man-made factor of production.
Man can produce capital but not land.
ii. Capital has to be produced by human
efforts and thus it involves cost of
production.
Supply of capital is relatively elastic.
iv. Capital is mobile physically as well as
occupationally.
v. Capital is not permanent. It is relatively
less durable as it goes on depreciating.
vi. Capital, say machines, tools are more
standardized in nature.
Labour
i. Labour assits in putting through the
programme of production.
ii. Labour receives wages.
iii. Labour does not face risk in the process of
production and suffer losses.
iv. The reward for labour is always positive.
v. Labour supplier efforts for production.
vi. Labour is the hired factor.
vii. Labour is often regarded as a directed
factor.
dependent on it.
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

Q.3 (B) WRITE SHORT NOTES ON

1) Explain the essential qualities of entrepreneur

Ans: The essential qualities of entrepreneur are:

1. Efficient: An entrepreneur should be highly intelligent, able and efficient so as to solve problems
arising in the industry.
2. Organiser : He should be a good organizer in a way so as to organize all the factors of production in
a proper manner to achieve the desired results.
3. Leadership: The success of any business largely depends upon its leader. Hence, an entrepreneur
must possess good leadership qualities. He should put the right person into the right job and give right
directions to different factors of production.
4. Decision maker: An entrepreneur should have the ability to take quick decisions with respect to
investment, location, nature and sale of products etc.
5. Self-confident: An entrepreneur has to be self-confident and someone who backs his own abilities.
He should be able to develop confidence in his team, regarding his integrity and honesty which in
turn helps to maintain goodwill and reputation of his firm in the market.
6. Bold and courageous: He should be able to face difficult times and adverse situations courageously
and boldly.
7. Knowledgeable: He should have complete knowledge about his business, market conditions, new
products, new technology etc.
8. Innovator: An entrepreneur must be innovative and creative. An innovative entrepreneur introduces
new products, develops new method of production, discovers new market etc. which in turn helps to
minimize the cost of production.
9. Vision and foresight: He should be a man of vision, foresight, full of imagination and judgement so
that he may be able to estimate the changes likely to take place in market trends.

2) Types of capital

Ans: Capital can be classified into four groups:

1. ON THE BASIS OF OWNERSHIP:

a) Private or personal capital: Capital which is owned by individual or institute that is group of
individuals is called private or personal capital. For example: a firm owned by an individual,
building, machinery etc.
b) Social or public capital: Capital which is owned collectively by the society or the government is
called social or public capital. For e.g.: roads, schools, public parks, hospitals etc.
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

2. ON THE BASIS OF DURABILITY:

a) Fixed capital: Capital which is used in production process again and again is called fixed capital.
It is durable in nature. For e.g.: machinery, factory building, etc.
b) Working or circulating capital: Capital which is used in production process only once is known
as working or circulating capital. It is also known as variable capital. For e.g.: raw material,
power, fuel etc.
3. ON THE BASIS OF MOBILITY:
a) Sunk capital: Capital which is used for a specific purpose is called sunk capital. It cannot be used
for any other purpose. For e.g.: washing machine, Xerox machine etc.
b) Floating capital: Capital which has several alternative uses is called floating capital. It can be
used easily from one business to another. For e.g.: electricity, fuel, coal etc.
4. ON THE BASIS OF NATURE:
a) Real capital: Physical capital used in production process is called real capital. It is used to
produce other goods. For e.g.: machinery, raw materials, equipments etc.
b) Money capital: Capital which is in the form of money is called money capital. Real capital like
raw material, machinery can be purchased with the help of money capital.

Q. 4 ANSWER THE FOLLOWING QUESTIONS

1) What are the peculiarities of land OR what are the features of land?

Ans: The features of land are as follows:

1. Free gift of nature: Land is not created by mankind. It is a free gift of nature. Thus, supply price of
land is zero from the society point of view. Hence, land has no cost of production.
2. Passive factor of production: Land is a passive factor of production, i.e. it cannot produce anything
by itself. It becomes productive only when the other factors of production such as labour, capital etc.
are used with it.
3. No geographical mobility: Land cannot move. It is immobile in nature. But, land has occupational
mobility, i.e. it can be put into some other alternative use. For example: fanning area can be used to
build residential plots. Therefore, it is the least mobile factor of production.
4. Inelastic supply: Man cannot increase or decrease the total volume of land. However, he can try to
improve the quality of land. The availability of land at any time is fixed. Thus, supply of land is
perfectly inelastic.
5. Permanent and indestructible factor: Land is an indestructible factor. It cannot be destroyed
completely. Fertility of land may diminish but its existence remains forever.
6. Heterogeneity: Land is a heterogeneous factor. It differs in quality. All lands differ from each other
in terms of their fertility. As a result, one cannot expect to get same quantity or quality of production
from different pieces of lands. Moreover, there are different grades in land. As a result, superior land
commands a higher price in the form of rent as compared to an inferior one.
7. Diminishing marginal returns: Land is subject to the law of diminishing marginal returns. As more
and more inputs are employed on the same piece of land, after a particular stage, the total output
increases but at a diminishing rate.
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

8. Derived demand: The demand for land is indirect. Demand for land depends on the demand of other
goods and services. For example, the demand for agricultural land is derived from the demand for
agricultural products.
9. Site value: The value of land depends on its location. Land situated near an urban area commands
higher price as compared to the land located near a rural area.

2) What are the features of labour? OR explain the characteristics of labour.

Ans: The features of labour are as follows:

1. Inseparable from the body of the worker: Labourer and his work, i.e. labour always go together.
Therefore, labourer must be present at the site where he is supposed to render his services.
2. Human and active factor of production: Labour is the most active factor of production. Other
factors become productive only after the application of labour. Labour being a human factor has
feelings, likes and dislikes. Therefore, he cannot be simply treated as a machine or any instrument.
3. Labourer sells his labour and not himself: As quoted by Marshall, “the labourer sells his labour,
but he himself remains his own property” i.e. the labourer sells his labour and not himself.
4. Restricted mobility: According to Adam Smith, “of all the luggage’s, the labour is the most difficult
to be transported.” The geographic mobility of labour is restricted due to family attachments, housing
problems, climate etc. To some extent, labour can move from one country to another or from one
business to another.
5. Perishable factor: The labour of a labourer cannot be stored and used for future as it is perishable in
nature. If a worker is absent for a day, the labour for that day is wasted. Thus, the amount of labour
lost is lost forever.
6. Efficiency of labour: Labour is a heterogeneous factor. The efficiency of labour is different from
worker to worker on account of skills, efficiency, education, training, culture etc. Hence, labour is
categorized under different classes such as skilled labour, semi-skilled labour and unskilled labour.
7. Less bargaining power: Individual labourer has a weak bargaining power. They prefer to work for
low wages rather than remaining unemployed. However, in modern days, labourers form trade unions
and through these unions, they can put forward their demands like better working conditions, higher
wages, etc.
8. Inelastic supply of labour: Population belonging to the age group of 15-59 are considered as
working population. The working population cannot be increased or decreased quickly in a short
period to meet the demand for labour. Hence, the supply of labour is relatively inelastic in nature.

3) What are the features of capital?

Ans: The features of capital are as follows:

1. Man-made factor: Capital is a man-made factor of production. Man produces capital in the form of
plant, machinery, building, vehicles etc.
2. Mobile factor of production: Movement of capital from one place to another or from one country to
another is easily possible, as it has the highest mobility. Moreover, it has both geographical as well as
occupational mobility.
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

3. Passive factor of production: Capital becomes productive only with the help of other factors of
production. It cannot produce anything of its own. Thus, it is a passive factor of production. However,
it helps in increasing the efficiency of other factors of production.
4. Elastic supply: Supply of capital can be increased or decreased as per its demand. Thus, supply of
capital goods is elastic in nature. Supply of capital can be increased by increasing saving and
investment.
5. Derived demand: Human wants are not directly satisfied by the capital goods. But with the help of
capital goods, production of consumer goods is possible. Thus, it has derived demand.
6. Capital is part of wealth: Capital possesses all the characteristics of wealth such as utility, scarcity,
transferability and externality. Hence, all capital is wealth, however all wealth is not capital as all
things which are termed as wealth cannot be used in production process.
7. Durability: Unlike labour, capital is not perishable in nature. Capital assets like machinery are
durable in nature, which contribute to production for a longer period of time.
8. Productive factor: Capital helps in increasing level of productivity. Use of capital not only improves
efficiency of land and labour but also helps to increase the total production. Without capital,
production is not possible.

Q.5 DO YOU AGREE WITH THE FOLLOWING STATEMENTS. GIVE REASONS.

1) Profit is a reward for bearing risk only.

Ans: No, I do not agree with this statement.

Reasons:

a) An entrepreneur is the one who organises the factors of production and takes necessary actions to run
business.
b) An entrepreneur performs various functions to carry out his business. He has to manage, organize and
control his business. Besides managing the business, he has to undertake risks and earn certainties.
c) An entrepreneur has to undertake several decisions regarding how to produce, what to produce at
what cost, where to sell etc.
d) Risk and uncertainty bearing function is the unique and most important function of an entrepreneur.
There are two types of risks: insurable risk which is insured by insurance company. E.g. risk due to
fire, flood, accidents; non-insurable risk is not insured by insurance company e.g. risk due to change
in demand for the product, change in government policy, etc. Profit is the reward for bearing these
uncertainties and non-insurable risk.
e) Innovation is the most important function of an entrepreneur. He is the innovator. He has to
innovative new ideas, new markets, new technology, etc.
f) Thus, profit is the reward for managing the enterprise, risk taking, uncertainty bearing and innovation.

2) Labour is a perishable factor of production. OR labor cannot be stored.

Ans: Yes, I do agree with this statement.

Reasons:
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

a) Labour is a human resource and contributes physically and mentally for the production of goods and
services with a view to earn some reward i.e. wages.
b) Labourer and his work always go together. Labour and his services cannot be separated from each
other. Labour has to be present at the place of work to provide its services.
c) Labour is highly perishable in nature. It cannot be stored for future use.
d) In case of other factors like land and capital, they can be stored and sold at a later date, when the price
rises. But, labour cannot be preserved in this manner.
e) If a worker is absent for a day, the day’s labour is gone. Labour that is lost today is lost forever. Thus,
labour cannot be stored.

3) Supply of land is fixed/ supply of land cannot be increased/ supply of land is inelastic.

Ans: Yes, I do agree with this statement.

Reason:

a) In economics, land includes all natural resources available on, above and below the surface of the
earth.
b) Land is free gift of nature. It includes all the natural resources like soil, mountain, water, air, climate
etc.
c) Land is not created with human efforts. Thus, supply price of land is zero from the society point of
view.
d) The total land surface is determined by nature and is fixed in supply. Man cannot increase or decrease
the total volume of land. Man can try to improve the quality of land.
e) Man can only decide how to use land in production process.
f) So, the supply of land for the society as a whole is fixed, limited or perfectly inelastic.

4) All risks are insurable.

Ans: No, I do not agree with this statement.

All risks are not insurable.

a) There are two types of risks. They are insurable and non-insurable risks.
b) Insurable risk can be insured. They are risk arising due to theft, fire, flood etc.
c) These risks can be foreseen and can be insured with insurance company by paying a premium.
d) For e.g. if theft or fire takes place, the insurance company pays for the damage.
e) So these risks are not being borne by the entrepreneur.
f) But there are certain risks called non-insurable risks or uncertainties, which cannot be predicted fully
in advance.

Q. 6 ANSWER IN DETAIL
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).

1) Explain in detail the functions of an entrepreneur OR Entrepreneur is the ‘Captain of an

industry’. Explain.

Ans: The functions of an entrepreneur are broadly classified into three categories:

1) ORGANIZING FUNCTIONS: An entrepreneur has to perform following functions to organize

business:
a) Factor co-ordination: An entrepreneur has to co-ordinate other factors of production such as land,
labour and capital in a manner that would help in achieving maximum results at a minimum cost.
b) Decision making: an entrepreneur is a decision making factor in a production process. He has to
undertake various decision regarding how and how much to produce, when and where to produce,
where and how to sell etc.
c) Planning: Planning for an entrepreneur is a continuous process. An entrepreneur has to plan well in
advance before starting a production process. Even during the production process, he should alert
and competent enough to alter the production so as to achieve the maximum output. After the
product is ready, the entrepreneur should be ready with a plan regarding the sales of his products.
d) Supervision: An entrepreneur should supervise the functioning of the business. He should keep a
continuous check on the working of factor inputs in order to achieve the desired results.
e) Making factor payments: An entrepreneur has to make fixed contractual payments to all factors of
production i.e. land, labour and capital. He should distribute the payments according to the
contribution made by each factor in the process of production.

2) RISK AND UNCERTAINTY BEARING FUNCTION: According to this function, an entrepreneur

has to undertake risks and uncertainties in the business. It is a unique and an important function
performed by an entrepreneur. An entrepreneur has to bear the following two types of risk:
a) Insurable risk: It is the risk which is insured by the insurance company. For example: risk due to
fire, flood, accident etc. The losses due to such risks can be avoided.
b) Non-insurable risk: It is the risk which is unexpected and which cannot be insured by an insurance
company. For example: risk due to change in demand for a commodity, change in government
policy, availability of close substitute for the product etc.
3) INNOVATIVE FUNCTION: According to Schumpeter, “An entrepreneur is a person who
introduces innovative changes in an enterprise.” He also states that the introduction of innovation is
the soul of entrepreneurial function. This function of an entrepreneur includes development of new
products, new technology, new markets, new sources of raw materials, new organization structure etc.
Thus, an entrepreneur performs a variety of functions; therefore he is rightly described as the captain
of the industry.
ECONOMICS NOTES S.Y.J.C
PREPARED BY PROF.TANVI.RAJA
THAKUR RAMNARAYAN COLLEGE OF ARTS AND COMMERCE
DAHISAR ( EAST ).