LESSON 4

CHAPTER 3 - FACTORS OF PRODUCTION

Factors of production are the economic resources that are used to produce goods and services. They
are:
(i) Land – land is defined as all the factor services available naturally, whether on, above or
beneath the earth’s surface. There are different types of land:
- Land itself on the earth’s surface
- Land above ground
- Seas and rivers
- Resources beneath the earth
Characteristics of Land are:
- Land is fixed in supply
- Land has no cost of production
- Land is geographically immobile

(ii) Labour – this refers to those people who are available for work in the economy.

Characteristics of Labour are:

- Labour is a human factor
- Only the worker himself can sell his labour services
- Labour services cannot be stored in the same way as units of land or capital
- Labour is geographically and occupationally more mobile than land
- Labour is not homogeneous

(iii) Capital – capital refers to all the goods used to produce more goods.

Characteristics of Capital are:

- Capital is man-made
- Units of the same type of capital are homogeneous
- Mobility of capital varies
- Capital can be imported
Types of capital are:
- Working capital – the raw materials and intermediate goods used in the production
process.
- Fixed capital – comprises the factories and machineries used in the production
process.
- Social capital – social services provided by the government
- Human capital – consists of the skills, knowledge, and abilities of human.
 (iv) Entrepreneurship – entrepreneurship involves an entrepreneur taking the risk to combine the
other three factors of production, namely land, labour and capital, in order to have a finish
production.

FACTORS OF PRODUCTION
PRIMARY AND SECONDARY FACTORS OF PRODUCTION
A primary factor of production is one that occurs naturally, such as land or unskilled labour.
A secondary factor of production is one created by man or developed in some way, such as capital,
entrepreneurial talents or skilled labour.
Production
Production can be defined as the conversion of factors of production into goods and services that
consumers wish to consume.
Goods are tangible products whereas services are intangible.
Producer goods – producer goods are goods, such as, machinery, that help in the production of other
goods and services.
Intermediate goods - goods that are used as inputs in the production of other goods and services.
Final goods – final goods are goods that are bought by consumers for use of consumption.
Productivity
Productivity is the measure of output per unit of input.
Labour productivity is a measure of output per unit of labour input.
Labour productivity = Quantity of output
Quantity of labour used
Productivity of land is a measure of output per unit of land used.
Productivity of land = Quantity of output
Quantity of land used
Productivity of capital is a measure of output per unit of capital used.
Productivity of capital = Quantity of output
Quantity of capital used
 Important Terms in this Chapter

Mobility – mobility is the ease with which a factor of production can move
from one place to another.
Division of labour – this the where the production process is divided into a
series of separate tasks.
Specialization – this occurs when workers focus on a specific task and so
become skilled in that area.
Labour force – this is number of persons willing to work in the economy.
Supply of labour – the total number of hours that workers are willing to work.
Investment – the purchase of capital goods.
Capital accumulation – the increase in the capital stock of a country.