Factors of production
Definition: They are the economic resources of capital, enterprise, labour and land
TYPES OF FACTORS OF PRODUCTION
Land
· Covers any natural resource which is used in production
· Includes what is beneath the land, what grows naturally on land, what is found in them.
· The supply of land: The amount of physical land in existence does not change in time,
therefore
· The mobility of land: Occupationally mobile, Geographically immobile.
Capital
· Any human-made goods used to produce other goods and services
· Example: Offices, factories, machinery
· Capital is also known as capital goods and producer goods
· They are not wanted for their own sake but for what they can produce
Consumer goods are wanted for the satisfaction they provide to their owners
Supply of capital:
o Increases with time. Every year some capital goods physical wear out and some
become outdates.
o The total value of the output of capital produced is referred to as gross investment.
o Some of the capital goods produced will be replacing those which have worn out or
become obsolete.
o The value of replacement capital is called depreciation or capital consumption
o Net investment is the value of the extra capital goods made
o Net investment = Gross Investment – Depreciation
Mobility of capital:
Mkhuzweni High School IGCSE Economics Notes By Mr. N. Hlanze
o It varies according to the type of capital good.
o Example: A photocopier is geographically mobile. A coal mine is
geographically immobile as well as occupationally immobile. An office block is
occupationally mobile.
Labour
· Labour covers all human efforts – both mental and physical, involved in producing a
good.
Supply of labour:
it is influenced by 2 factors:
Number of workers available (which is influenced by:)
· Size of the population
· Age structure of the population
· Retirement age
· School leaving age
· Attitude towards working women
The number of hours for which they work (which is influenced by:)
· Length of an average working day
· Full time/ Part time
· Duration of over-time
· Length of holidays taken
· Length of sick leaves/ time lost through sickness & illness
· Those people who are working or are seeking work from the labour force(work
force)
· Productivity: output per worker hour
The mobility of labour:
Varies from person to person. The causes for geographical immobility of labour:
o Differences in the price and availability of housing in different areas and
countries
o Family ties
o Differences in educational systems in different areas and countries
o Lack of information
Mkhuzweni High School IGCSE Economics Notes By Mr. N. Hlanze
o Restrictions on movement of workers (visa)
· The main cause for occupational immobility: lack of appropriate skills and
qualification.
Enterprise
· It is the willingness and ability to bear uncertain risks and to make decisions in a
business
The supply of entrepreneurs is influenced by:
o A good education system (university degree courses in economics and BST)
o Lower taxes on firm’s profits (corporate tax)
o Reduction in government regulations.
The mobility of enterprise:
o It is the most mobile factor of production – both occupationally and
geographically mobile
PAYMENTS TO FACTORS OF PRODUCTION
Land – Rent
Capital – Interest
Labour – Wages
Entrepreneur – Profit
Mkhuzweni High School IGCSE Economics Notes By Mr. N. Hlanze
