1.5 Introduction and characteristics of factors of production | NEB Class 11 Economics

1.5 Introduction and characteristics of factors of production

Factors of Production (Land, Labour, Capital, Organization)

The things that contribute in the production of goods and services are known as factors of production. The quantity of the total product of a country depends on the quantity and quality of factors of production. The factors of production consist of land, labour, capital and organization. Collectively these factors of production as known as inputs.

Meaning of Land

• In general sense, land means outer surface of the earth or soil. But in economics, it has wider and broader meaning. It included not only the surface of the earth but also includes all the free gifts of nature like water, mountain

hills, forest, air, sunlight, minerals etc. In brief, land includes all that nature has created in the earth, above the earth and in the room of earth. The price of land is rent.

Characteristics of land

There are several distinct characteristics

of land which are explained below:

Free gift of nature

Land is the free of nature. Man cannot produce it. It does not hold cost of production but market value or price is occurred. It has no cost of production and value from the viewpoint of society. But it has cost and value from the view point of an individual.

ii). Immobile factor of Production

Land is completely immobile. It cannot be transferred from one place to another. It is fixed in a place. So it is also called fixed factor of production. According to uses and objectives of man it cannot be transferred.

From one place to another place. Man should conduct economy activities in the original place of land.

iii) Land is original & indestructible

• Land cannot be destroyed. The fortility

power of land can be decreased, restored

or increased by some means but can never be destroyed. So, and has original indestructible power which cannot be damaged. Even the effects of atom bomb can be cured and natural powers can be restored after some time.

(iv) Land is passive factor of production

• Land is passive factor of production. It cannot produce anything itself. It becomes productive only when labour, capital, organization and other inputs are used in the production of goods and services.

• Land differs in quality | Productivity | fertility.

• Land is of different variety. All lands are not equally fertile. Some Vands are more fertile than others. The value of land is governed by location. Lands never nearer to town can produce high rent so they yield high market value than those farther away. Therefore there are different grades of land found in economy on the basis of productivity.

In ordinary sense, labour is physical work. But in economics the term 'labour' has wider meaning. It does not merely mean manual labour but includes mental labour as well such as teaching of teachers, treatment of doctors, service of engineers, advocacy of lawyer etc.

In economics, all kinds of human efforts are not termed as labour. Labour refers to only that form of human effort which is undertaken with a view to obtain wealth or to earn economic reward. The efforts made without any economic motive but simply to derive pleasure is not labour.

As for example, an woman working in social service, a boy is playing and a mother caring her child are not labour because they do not get any reward for their work.

Characteristics of labour

Labour as an active factor of production has several distinct characteristics. They are as follows:

i). Labour is indispensable factor of Production.

1). Labour is indispensable factor of Production

• Labour is regarded as one of the indispensable factors of production. Production of any types of goods and services is not possible without Labour. It is regarded as leading factor to mobilize rest of the factors in the

production process. Thus, it is the most active and essential factor of production. By the help of it all the other resources are used.

ii) Labour is active factor of Production

Labour is an active factor of Production. It mobilizes all other factors of production such as land, Capital and organization. A labour does not need the help of others to make him work. Labour uses all the resources towards productive works. He is the two resources as full utilization. According to need of other resources, labour mobilizes them for production of goods and services.

iii). Labour is perishable factor of Production.

Labour cannot be stored for future use. If

is last forever with passing of time. If a labour

does not work on a particular day, the labour

of that day is lost forever. The labour last

cannot be regained. Therefore labour perishable

factor it cannot be restored for future application

iv) Weak bargaining power

Labour has Week bargaining power because of the perishable nature of labour. Labour cannot be accumulated to sell in future when price is high. In general, labour are illiterate and illorganized. Hence, they have weak bargaining power. Labours have low capital so they cannot

bargained with owners of an industry.

Labour sells his/her labour only not himself herself.

Labour contains on the human body which is known as labour. A labour sells his/her labour not himself/herself. He/She sells labour for payment of wage and salary. Labour sells their skill or talent or physical strength or experience in their job to produce any goods and services. No one will be ready to sacrifice whole life for the cost of wage and salary.

vi) Differs in efficiency

Labour may have different working efficiency, skills and talents. Some of them may be highly efficient and some inefficient according to their education, experience and training. The amount of wages and salaries also differ on the basis of their working efficiency and skills.

Capital

In ordinary sense, capital refers to the volume of money circulated for business transaction. But in economics, it refers to those resources from which some other goods are produced. Capital refers to those goods, which can be used for further production

of goods and services like machinery, equipment raw materials, transport equipment etc.

Capital is a major factor of production in economics. It is the wealth used for the further production of wealth. But it is different from wealth. The capital is a particular type of wealth, which is used to assist in production. All wealth is not used to assist production. Thus, all capital is wealth but all wealth is not capital.

Features | Characteristic of Capital

There are so many distinct features of capital which are explained below:

i) Man made factor of Production

Capital is anthe factor of production. It refers to those resources made by man such as machinery, building, vehicles, equipment, tools, furniture etc. These assets are basis of production. They are made according to the human beings.

ii) Most mobile factor of production

Out of all the factors of production, capital is the most mobile factor of production. It can be taken from one place to another easily because it holds the quality of divisibility, durability and portability. Therefore if there is more transaction of good

and services than capital becomes most mobile in economy.

iii). Passive factor of production.

Capital is one of the passive factors of production. It cannot perform any economic function without human efforts. Even automatic machines need human assist to operate. By the help of human efforts, every capital is used to produce goods and services. The significant of capital is possible with human efforts.

iv) Capital is depreciable factor of production

Capital is depreciable factor of production.

Capital is not permanent factor of production.

It is likely to depreciate with the using of it. The wear and tear cost is one of the parts of depreciation. Similarly, the maintenance cost of machines, plants and tools and replacement of such factors is also the subject of depreciation. Every capital goods depreciate at different rates.

V). Elastic factor of Production.

Capital has elasticity. By investing the capital, extra capital can be earned. The supply of capital can be increased or decreased according to its demand. For example, a business organization can buy new machines or sell them, can build new buildings or can sell according to.

necessities because capital is man-made factor of production and it has elastic in nature.

Organization

Organization refers to the collective body of

active human resource established for scientific

utilization of various factors of production (Land,

Labour and capital) in the process of production

of goods and services. The persons who establish

and organization and manage the resource to

produce goods and services is known as entrepreneur.

Business firms and industries of any nature

and scale are the forms of organization. Business

organization have to use land, labour, capital, raw

materials, energy and technology to produce goods

and services. Organization pays rent, wages and

interests to the land, labour and capital respectively. It itself is regarded as one of the separate

but active factor of production.

Features of Organization

Some of the features of organization are as discussed below:

i) Composition of interrelated individuals

Organization is a composition or aggregation of interrelated individual: The organization are not

merely a number of individuals collected at

random but they are composed of individuals

who are interrelated. The identifiable interrelated

group of individuals determines the boundary

of the organization. It shows the organization

as a separate entity from the other elements

in its environment.

ii) Achievement of common objectives

An organisation is a conscious and purposive creation. It is a means towards the achievement of common enterprise objectives. The objectives of various segments lead to the achievement of major business objectives. The organizational structure should build around common and clear cut objectives. This will help in the proper accomplishment of objectives.

iii) Division of work

Organization includes breaking up the entire work into different segments. Different segments of work are then assigned to different persons for their efficient accomplishment. This brings in division of labour. It is not that one person cannot carry out many functions but specialization in different activities is necessary to improve one's efficiency.

Organization helps in dividing the work into related activities so that they are assigned to different individuals.

iv) Co-ordination

Coordination of various activities is as essential as their division. It helps in integrating and harmonizing various activities. Coordination also avoids duplications and delays. In-fact, various functions in an organization depend upon one another and the performance of one influences the other. Unless all of them are properly coordinated, the performance of all segments is adversely affected.

v) Co-operative relationship

Any organization creates co-operative relationship among various members of the group. An organization cannot be constituted by one person. It requires at least two or more persons; organization is a system which helps in creating meaningful relationships among people. The relationship should be both vertical and horizontal among members of various departments.

The structure should be designed that it motivates people to perform their part of work together.