FACTORS OF PRODUCTION

Factors of production

Resources used for production Types:

Land Labour Capital Organisation / Entreprenuership Information Management

New inclusions

Land

Natural resources Characteristics

A gift of nature Limited in supply Land is immovable The supply of land involves no opportunity cost
Agriculture Fishing and trapping Mining Water Fuel and energy Logging and forestry

Six types of natural resources that primary industries use:

Primary industries that take something out of the Earth or the sea can be referred to as extractive industries.

Labour (1)

All of the physical and mental (cognitive) work needed to produce goods and services. It is a human factor. Labour Supply is measured in terms of time (man hour)

Labour supply = no. of workers x no. of working hours per worker Size of population Size of working population No. of working hours

Factors affecting labour supply:

Labour (2)

Ways to increase labour supply:

population growth (by natural growth or immigration) monetary rewards import of labour from other countries retirement age (e.g. from 60 to 70) school leaving age (e.g. from 16 to 17)

Labour is expensive so most businesses seek ways to save on labour costs.

Business automation, consolidation, and outsourcing save on labour costs

Labour (3)

Labour productivity :

output per unit of labour

Firm B has a higher labour productivity than firm A

Average labour productivity = average output per man hour

October 2011 working hours per worker Units of output Average labour productivity Firm A 240 7200 30 Firm B 180 6400 35.6

Labour (4)

Ways to increase labour productivity:

Better education and training Other factors of production( quantity & quality) Better management or organization. e.g. division of labour Better working conditions Greater fringe benefits (housing allowances, medical care, bonus, meal..)

Labour (5)

Occupational mobility

Factors affecting occupational mobility

Geographical mobility

Transport Social factors Economic conditions Political stability Immigration or emigration restrictions

Monetary / non-monetary rewards income of the present job (higher opportunity cost in changing job) mobility Specialization of skills mobility Licensing requirements mobility Higher age of workers mobility

Capital (1)

Man-made resources used for further production Examples: machines, raw materials, tools Features:

Man made It raises the productivity of other factors

Capital (2)

Capital is the money invested in the business. (can be liquid or non-liquid)= Tangible Assets Intellectual property, the ideas or the talent of a business workforce, is a non-tangible form of capital.

Capital (3)

Financial capital consists of the funds that firms use to buy physical capital. The factors of production are the elements of physical capital.

Organisation / Entreprenuership

The human resource that organizes labour, land, and capital. Entrepreneurs come up with ideas about what and how to produce, make business decisions, and bear the risks that arise from these decisions.

Information

Accurate and usable information reduces business risk and can enhance profitability.

New technology

Customers Competition Political conditions Sources of supply

Management

Consists of the people who run the business and control or direct the factors of production . Allocates company resources and makes decisions that affect the operations of the business

Factor Returns / Factor Pricing (1)

Functional distribution of income

The percentage distribution of income among the factors of production.

Personal distribution of income

The percentage distribution of income among individual persons.

Factor Returns / Factor Pricing (2)

Rent

Income paid for the use of land.

Wages

Income paid for the services of labour.

Income paid for the use of capital. Income rewarded to an entrepreneur for running a business.

Interest

Profit (or loss)

To be continued.