MARKET OF PRODUCTION FACTORS

ARRANGED BY: FILA LILIN LAILI (18130030)

ANGEL CAREZA (18130049)

SOCIAL SCIENCE EDUCATION

FACULTY OF TARBIYAH AND COURSE SCIENCE

 ISLAMIC STATE UNIVERSITY OF MAULANA MALIK IBRAHIM MALANG

FOREWORD

Thank you we pray for the presence of Allah SWT who has given His grace and guidance so that
this paper can be completed. Not forgetting salawat and greetings may always be poured out and
abundant to our great lord, the Prophet Muhammad, whom we nant safaat fish on the Day of
Judgment.
“There is no ivory that is not cracked”. Likewise in making this paper. We realize that there are
many mistakes and disadvantages. Therefore, we highly expect suggestions and criticisms from
lecturers and friends to improve this paper.

Malang, April 20, 2019

GROUP 12
 TABLE OF CONTENTS

FOREWORD
TABLE OF CONTENTS
CHAPTER I INTRODUCTION
1.1 Background………………………………………..…………………………………………..
1.2 Formulation of the Problem ……………………….. ……………………..………………….
1.3 Purpose of Writing….. ………………………… ……………………………………………
CHAPTER II DISCUSSION
2.1 Market Factor Production ……………………………. …………………………………..
2.2 Types of Production Factors Markets ………………………………. …………………….
2.3 Market Characteristics of Production Factors …………………. ………………………….
CHAPTER III CLOSING
3.1 Conclusions ………………….…………… ………………………………………….. …..
BIBLIOGRAPHY
 CHAPTER I

PRELIMINARY

1.1 Background

As we know that to be able to carry out production activities, production factors are needed,
because the production factor is not owned by the company’s household, meaning that the supply
of production factors must be through the buying and selling of factors of production. Of these
needs the production factor market is formed. If there are no goods made from certain factors of
production there will be no demand for the relevant factors of production. The demand for these
factors of production is derved demand. The factor production market is often also called the input
market.
Market factors of production in Economics are defined as the overall supply and demand of
production factors in a particular area / region. Factors of production (factors of production) are
inputs used to produce goods and services. Workers, land, and capital shareholders are the three
most important production factors. Production factors create or add value to goods and services.
The simple definition is everything that is needed so that production activities can run step by step
The demand for production factors generally comes from entrepreneurs who will produce goods
for sale. Formation of prices in the production factor market (input market) with the meeting
between demand and supply.

1.2 Formulation of the problem

From the background of the bell above, the writer can determine the formulation of the problem
as follows:
What is the understanding of the Market Production Factor?
What are the characteristics of the Production Factor Market?
What is the Mechanism of the Production Factor Market

1.3 Writing purpose

From the formulation of the problem above, the writer can determine the purpose of writing as
follows:
To find out the meaning of the Production Factor Market
To Know the Characteristics of a Production Factor Market
To Know the Mechanism of the Production Factor Market
 CHAPTER II
DISCUSSION

2. 1 Production Factor Market

Factors of production or resources are the elements needed in the production process. The factors
of production are labor, land, capital, and entrepreneurs. The emergence of demand for factors of
production can produce good goods for humans. If there are no items made from certain production
factors there will be no demand for the production factor in question. The demand for these factors
of production is derved demand. The production factor market is often also called the input market.
The demand for production factors generally comes from entrepreneurs who will produce goods
for sale. Formation of prices in the production factor market (input market) with the meeting
between demand and supply.
The factor price of production is determined through the interaction of demand and supply of the
production factor itself. The input demand in the production factor market is derived demand,
which means input demand is influenced by its output demand. Type of Input Market

2.2 Types of Production Factor Markets

Production factors in the input market are grouped into 4, namely:
Market Factors in Natural Resource Production (Land)
The factor of production of natural resources is all natural wealth that can be used for the
production process. Examples include land, water, sunlight , mining and air. That is, the factor
market for natural resource production is related to the demand and supply of natural resources
from economic actors, for the sake of production or investment interests. Factors in land
production include the surface and everything contained in it. Reward received from users is rent
of land. The price and amount of land demand is different depending on differences in the nature
of the land, the location and the amount of land used for production. The process of forming land
prices depends on the land demand. The higher the demand for land the price / rent of land will be
more expensive and vice versa.
Reward obtained from the user of production factors in the production process is called rent. For
example, to build buildings, factories and bridges.
There are several theories that try to explain the causes of differences in land rent:

1) Original soil fertility theory: land rent depends on the original fertility level of the land. If
the land has original fertility, the production will be greater.
2) Theory of differences in soil fertility (David Ricardo): if the land has a high fertility rate
the rental price will be high and vice versa.
3) Theory of land layout (Von thunen): if land is located near public facilities and economic
activities, sewage prices will be high because strategic location allows many economic
opportunities to develop business
4) The price theory of land derivation: depends on the amount of demand for land.

The curve shows that, the higher the price of the land the demand will decrease. While the offer is
perfectly inelastic, which means that regardless of the price changes that occur it will not affect
the amount of land offered.
From the picture above, it can be seen that the shift of the DD curve to D ‘D’ and D “D”, the land
rental price will increase

Market Factors for Human Resource Production ( Labor )

The labor market is all activities of the actors whose purpose is to bring together job seekers with
users of labor. We can say that labor is a production factor that plays a role in managing other
resources.
- Demand for labor.
Relating to the amount of labor needed by certain companies or agencies. Demand comes from
production households, influenced by changes in wage rates, changes in market demand for
production, prices of capital goods.
- Supply of labor
Influenced by the level of wages, especially the types of positions that are of a special nature. Offer
comes from the community.
- Labor market balance
Occurs when at a certain wage level job seekers accept jobs offered and employers are willing to
employ these workers.
We can divide the workforce based on several groups, namely:
- Based on its nature:
Physical labor: is a workforce that uses more energy in work. For example: farmers, pedicab
drivers, sweepers
Spiritual workforce: is a workforce that uses more of his mind’s ability to work. For example:
doctor, teacher, banker
- Based on the quality and ability:
Educated workforce: is a workforce that requires certain education to be able to do its work.
For example: lecturer, doctor
Skilled workers: are workers who need certain skills so that they generally need certain training to
be able to do their jobs.
Example : tailor, kapster salon, driver
Uneducated and unskilled labor: are workers who do not need special education or skills to be able
to do their jobs.
Examples: scavengers, newsmen, hawkers

Labor wage theory:

1) Normal wage theory (David Ricardo): wages are given according to the ability of the
company based on the company’s financial capability based on the living costs of workers.
2) Iron wage theory (Ferdinand Lassalle): wages should be kept as low as possible to get
maximum profits. As a result, wages are only enough to meet daily needs. To overcome
this, a trade union was formed.
3) The wage fund theory (John Stuart Mill): depends on the willingness of the amount of
capital to pay wages. If the number of labor offers is high, the wage rate will be low.
4) Ethical wage theory (Utopian): wages must be able to encourage workers to live properly.

- Wage system:

1) Wages according to time: paid for each unit of time; daily, weekly, monthly or hourly
2) Unit wages: paid based on the number of units that can be ccomplete
3) Volume wages: based on one unit of work as a whole, usually for building / road projects.
4) Wage index salary: based on the cost of living index
5) Wage scale: based on the company’s sales scale
6) Wages with premiums: employee wages plus premiums (extra wages) based on additional
work
7) Wages of participation: sharing company profits with employees
8) Wages co-partnership: the opportunity for employees to be able to buy company shares.
 - Good wage requirements:
Workers must know how to determine their salary
Wages must be paid on time
Wages must be fair and fair
The amount of wages must meet the minimum requirements

From the picture above, it can be seen that the curve of work price offers always increases
according to the rate of population growth, so that the supply curve shifts to become S’S ‘along
with the discovery of new technology, on the labor demand curve the increase in supply is greater
than demand, so the wages experience decrease from W to W1

Market Factors in Capital Production

Is a market where long-term funds and investments are traded. Requests from business owners and
offers from capital owners. Repayment of services obtained by the capital owner is called interest.
Capital demand is influenced by the rate of return on capital. High and low interest rates are
influenced by factors:
1) Demand and supply of capital in the community
2) Possible risk of loss of loaned capital
3) Economic conditions
4) Government intervention in setting interest rates
Mode l is a production factor that has a role in speeding up and helping smooth the production
process. Capital can also be divided into several groups:
- Based on its nature:
Fixed capital: is capital that has long lasting properties so that it can be used many times in the
long run.
Examples: machines, buildings, vehicles
Current capital: is capital that has disposable properties.
Example: paper, fuel.
- Based on the source:

Own capital: is capital originating from the person of the election and the company itself
Foreign capital: is capital originating from loans to banks or other parties
- Based on ownership:
Individual capital: is capital sourced and owned by individuals and the results can be categorized
as income for the owner of the capital.
Examples: interest savings, car rental, building rent
General capital: is a factor of capital production originating from the government and used for
mutual interests.
Example: market, port
- Based on the shape:
Concrete capital: is capital whose physical form can be seen during the production process.
Example: machines, raw materials
Abstract capital: is capital that has no physical form but is valuable and has uses for the company.
For example: patent rights, rights to registration, good name

Market Factors in Entrepreneur Production (Entrepreneurship)

The factor of production of entrepreneurs is people who have an entrepreneurial spirit or have
expertise in managerial skills. Entrepreneurs have a very important role in organizing natural
production factors, labor and capital to get maximum results.
2.3 Characteristics of the Production Factor Market
a. Not physical but activity
b. The demand and supply of production factors are carried out in large quantities
c. Types of offers and requests for production factors in accordance with the
production produced
d. Offering factors is sometimes a monopoly while demand for factors of production
is collective.
CHAPTER III
COVER

3.1 CONCLUSION

As we know that in order to be able to carry out production activities, factors of production are
needed, because the factors of production are not owned by the household of the company,
meaning that the supply of factors of production must go through buying and selling factors of
production. Of these needs the production factor market is formed.

Market factors of production in Economics are defined as the overall supply and demand for
factors of production in a particular region / region.
In the production factor market there are several things that distinguish the goods market. These
differences include:
a.The party making the offer is the consumer household.
b.The party making the request is the manufacturer’s household.
c.For consumer households (owners of production factors), the factor price of production is income
which is referred to as rent, wages, interest and profits.
d. For producer households, the expenditure to obtain production factors is called cost.
e.Goods or commodities that are traded are a factor of production. So thus this market has
characteristics that are different from the general goods market.