FACTORS OF PRODUCTION

• Factors of Production are ‘Economic Resources used to produce

goods & services’
• Most economists identify four factors of production
•Production of all goods & services requires the four factors of
production in varying proportion.
FACTORS
OF
PRODUCTION
LAND LABOUR CAPITAL ENTERPRISE
SUPPLY OF FACTORS OF PRODUCTION

• Can the supply of all four factors of production increased?

•Can the quantity of factors of production be changed?
•Can the quality of factors of production be changed?

MOBILITY OF FACTORS OF PRODUCTION

• How easy or difficult it is for factors of production to be transferred
to alternative industries or different locations.

•Occupational mobility: capable of changing use

•Geographical mobility: capable of moving from one location to another location
MOBILITY
OCCUPATIONA GEOGRAPHICA
L MOBILITY L MOBILITY
 LAND
Meaning
•Land covers all natural resources used for production process.
•So besides land itself , it also includes what lies beneath the land,
on the land and other natural resources
Q: Factory build on a piece of land- Is this an example of ‘LAND’ as factor of production?

Supply of ‘LAND’
•Can the quantity / supply of physical land change with time? How?
•Why do we need to change quantity of land?

Quality of ‘LAND’
•Can the quality of land change with time? How?
•Why do we need to change quality of land?

Mobility of ‘LAND’
•Is land occupationally mobile or immobile?
•Is land geographically mobile or immobile?
 LABOUR
Meaning
•Labour covers all human effort- mental /physical/skilled/unskilled
•Also referred as Human Resources/ Human Capital

Supply of ‘LABOUR’
•Can the quantity / supply of labour change with time? How?
•Why do we need to change the quantity of labour?

Supply of labour depends on-

The size of the population
The age structure of the population
The retirement age
The school leaving age
Attitude to working women
Number of hours for which people work for depends on-
Length of the average working day
Full time or part time job
Over-time facility
Length of holidays
Amount of time lost through sickness or illness
Labour force/workforce/ working population – all individuals of working
age who are employed or are unemployed and seeking work.

Labour productivity- output per worker

Quality of ‘LABOUR’
•Can the quality of labour change with time? How?
•Why do we need to change quality of labour?

Mobility of ‘LABOUR’
•Is labour occupationally mobile or immobile?
•Is labour geographically mobile or immobile?

Geographical mobility of labour depends on-

Cost of living in different areas
Family ties
Cultural/ educational differences
Lack of information about better work opportunities
Restriction on the movement of workers
 CAPITAL
Meaning
•Also referred as - Human -made goods / manufactured goods/ producer
goods /capital goods
•Used to produce other goods and services
Q: Is computer a capital good or a consumer good?
Supply of ‘CAPITAL’
•Can the quantity / supply of capital change with time?
•Can it be increased/ decreased ?
Gross Investment : expenditure on capital goods
Depreciation : value of replacement of capital goods when become obsolete
Net Investment : Gross Investment- Depriciation
Quality of ‘CAPITAL’
•Can the quality of capital change with time? How?
•Why do we need to change quality of capital?

Mobility of ‘CAPITAL’
•Is capital occupationally mobile or immobile?? Give examples
•Is capital geographically mobile or immobile?? Give examples
 ENTERPRISE
Meaning
•Brings all other factors of production together for production of goods &
services…known as Entrepreneurs
•Willingness and ability to bear uncertain risks and make decisions
Q: Who bears risk and who makes decision in a large public ltd company?

Supply of ‘ENTREPRENEURS’
•Can the quantity / supply of entrepreneurs change with time?

Quality of ‘CAPITAL’
•Can the quality of entrepreneurs change with time? How?
•Why do we need to change quality of entrepreneurs?

Mobility of ‘ENTREPRENEURS’
•Are entrepreneurs occupationally mobile or immobile?
•Are entrepreneurs geographically mobile or immobile?
 PAYMENT TO FACTORS OF PRODUCTION
LAND- Rent

LABOUR – Wages /Salaries

CAPITAL - Interest

ENTERPRISE - Profit