UNIT: 2 FACTORS OF PRODUCTION

PRODUCTION: MEANING AND TYPES

Production is one of the most widely used terms and it is constantly found in the
conversations of business magnets. Be it small-scale industries or large-scale industries, the
type and the size of the firm or organization don‟t matter since everyone works their best for
achieving success. The success can be quantified in terms of quantity and quality of the
production for the companies. Here we will have brief documentation of the term production
and what it means in commerce. The making or doing of things which are not wanted or are
made just for the fun of it does not qualify as production. On the other hand, all jobs which
do aim at satisfying wants are part of production.
Those who provide services Such as hair-dressers, solicitors, bus drivers, postmen, and clerks
are as much a part of the process of satisfying wants as are farmers, miners, factory workers
and bakers. The test of whether or not any activity is productive is whether or not anyone will
buy its end-product. If we will buy something we must want it; if we are not willing to buy it
then, in economic terms, we do not want it.
Definition of Production:
According to Bates and Parkinson:
“Production is the organised activity of transforming resources into finished products in the
form of goods and services; the objective of production is to satisfy the demand for such
transformed resources”.
According to J. R. Hicks:
“Production is any activity directed to the satisfaction of other peoples‟ wants through
exchange”. This definition makes it clear that, in economics, we do not treat the mere making
of things as production. What is made must be designed to satisfy wants.
The Different Types of Production
There are various types of products that can be categorised into numerous categories.

 Unit or Job Production: This is the single unit of production to a single customer.
The term unit suggests the same theory. Bakeries, Restaurants, Tailoring shops
amongst others come under this category. Its features are dependent on customer
service and support. It also depends on human resources such as communication, skill
etc. than the machinery.

 Batch Production: This is another important classification that concentrates on the

production of the group of products within the same period. Most appliances and
durables fall in this category. The manufacturer knows the volume of products that is
required before the start of production. This type of production depends on the season
and involves high risk if it has to stop in the middle.

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 Mass or Flow Production: This type of production applies to large-scale industries
since they produce goods and items in bulk quantity and once the production is
completed they start all over again. This type of production needs large capital. The car
manufacturers are an example of this type of production.

 Process or Continuous Production: This has similarities with mass production

however it is a completely different type of production. In this type, the process plays
a key role since the process of manufacturing goes on continuously. Brewing is one
example of continuous production.
Different Components of Production
So far, we have covered „what is meant by production?‟ and, „what are the types of
production in economics?‟. Besides these, we have another classification of production
based on a process. They are as follows.

 Primary Production: It is the first phase of the production process. The collection
and extraction of raw materials take place in this stage. It plays a vital role in
hardware and large-scale industries. In this phase, the collection of funds and
investment are essential.

 Secondary Production: It is the mid-phase of production. It involves both machinery

and manual work in parallel. It focuses on the utilization of raw materials effectively
to get more productivity. Here we need working capital.

 Tertiary Production: It is the last and significant phase as all the packaging, and
distribution of goods happens here. It is the phase where we can earn returns for our
qualitative products. It involves certain risks too.

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MEANING AND FEATURES OF LAND

The term „Land‟ in economics is often used in a wider sense. It does not mean only the surface of the
soil, but it also includes all those natural resources which are the free gifts of nature.

The term „land‟ generally refers to the surface of the earth. But in economics, it includes all that,
which is available free of cost from „nature‟ as a gift to human beings. Land stands for all nature,
living and non-living which are used by man in production.

Even though land is passive factor and it does not possess any ability to produce on its own, it is an
important agent of production. Modern economists consider land as a specific factor of production,
which can be put, not only to a specific purpose but to several other uses.

Features 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.

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.

Factors of Production: Labour

Labour includes both physical and mental work undertaken for some monetary reward. In this way,
workers working in factories, services of doctors, advocates, ministers, officers and teachers are all
included in labour. Any physical or mental work which is not undertaken for getting income, but
simply to attain pleasure or happiness, is not labour.
For example, the work of a gardener in the garden is called labour, because he gets income for it.
But if the same work is done by him in his home garden, it will not be called labour, as he is not
paid for that work. So, if a mother brings up her children, a teacher teaches his son and a doctor
treats his wife, these activities are not considered ‘labour’ in economics. It is so because these are

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not done to earn income. According to S.E. Thomas, “Labour connotes all human efforts of body or
mind which are undertaken in the expectation of reward.”
Key points Introduction to Labour:
 The labour has wide and diversified meaning in economics. Labour would mean any work,
manual or mental, which is done for a reward. It includes the work done by farmers,
workers, the services of teachers, doctors, actors, etc.
 Marshall defined labour as “any exertion of mind or body undergone partly or wholly with a
view to some good other than the pleasure derived directly from the work”.
 Any work that is done for the pleasure does not come under labour. A person who is
working in his rose-garden as a hobby is not a labourer. But, if he works in rose garden,
which is cultivated for sales, then he is a labourer.
 Labour like land is treated as the basic factor of production.
 Land and labour when combined in right proportion produce wealth. In fact, land or any
other factor of production is of little use till labour is applied.
Characteristics of Labour:

 Labour is inseparable from Labourer: The worker has to sell his labour in person and he
has to be physically present, while delivering the work. He cannot deliver the work in
absentia. It varies from labourer to labourer depending on races, climate, physical and
mental alertness of labourer. Labour cannot be separated from the labourer.
 Labour is perishable: Labour cannot be preserved which means that labourer has no reserve
price. He has to sell the work without really minding the wages, for, a day’s work lost is a
loss forever. In other words, it is a flow resource.
 Labour has very Weak Bargaining Power: Perishability of labour is a prime factor for the
labourer, which rather forces him to accept whatever the wage that is offered. The weak
bargaining power of the labourer is taken as an advantage by the employer.
 Lack of Free Mobility: Compared to capital, labour is less mobile. No doubt that labourers
move from one place to another and from one occupation to another, but it is not a common
feature. Thus, labour, lacks horizontal and geographical mobility. This leads to a variation in
wages among the occupations as well as spatially.
 Supply of Labour is Independent of Demand: Supply of labour depends on the population
in a country. Population is one factor which can neither be increased nor decreased
overnight. The increase or decrease is a slow process and supply of labour is independent of
demand.
 Supply of Labour Peculiarly Changes with the wages: Normally the seller of a good sells
more when the price per unit of commodity is higher and vice versa. But regarding labour a
fall in wages leads to an increased supply of labour. A fall in wages leads to reduction of
their incomes,so to make good this fall in income, family members who were not working
earlier work to supplement the family income.
 Different Efficiency: Labourer’s are of different efficiency. Some are more efficient on
account of their ability, training and skill, others are less efficient on account of their
illiteracy and ignorance. Efficient labourers work better.
 Means and End: Labourer is a means of production as well as an end because he is the
consumer also. It is different from land and capital as they are only the means of production
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and not an end. Whatever is produced is also consumed by the labour force. Therefore,
labour is both a means and an end of production.
 Active Factor: Labour is a more active factor of production than the land which a passive
factor of production. Labour is also as essential factor because without labour land, natural
resources or capital are of no use.
 Different from Capital: The nature of labour is different from the nature of the other factors
of production. Labour has its own likes and dislikes, feelings, desire to take rest. It
influenced by the behaviour of employer and in turn influences him. It is not easy to
estimate the cost of producing the labour force in a country – whereas capital has no such
problems. Therefore, labour is different from capital.

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