Factors Of Production #Economics

WELCOME TO YOU

I heartily welcome you to read this post on "factors of production" which is an important concept in Economics as well as business sciences. Generally it is the Part of quantitative research analysis but     indirectly qualitative analysis also. 

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Production

As we've written in production concepts, It is the process of converting inputs to output which has utility to satisfy human wants. Production of a good is not possible with only a person. The process has to involve both natural resources and manmade factors. Production is a main concept in economics. It is the question arises what to create/produce, when and time. 

Factors of production

Now we know that it is not possible to produce a commodity/good with only 1 involvement. It has to engage with number of cycles and have to move different hands to reach the hands of consumer. Factor of production refers to the resources or factors which participate in the process of production or which helps to produce a good.

For example, 

• Land: Denoted by "n" natural resource
• Labour: Denoted by "l"
• Capital: Denoted by "K" 
• Organiser or Entrepreneurship: Denoted by "o" Risk taker.

Land

Land is the Main factor which contributes hugely in production process. Land refers to free good which is given by the nature. It not only includes the land which is cultivated but also The forests, lakes, rivers, weather, mountains, rich natural resources etc. 

• It is free of cost given by the nature. but cannot utilised freely.
• The supply of this factor is perfectly inelastic in nature.
• Mobility of this factor is not possible. It cannot move from one place to another like labour.
• This factor is not homogeneous or same. Fertility is different due to environment, infrastructure etc.

Labour

Labour refers to a person who is employed for a particular work for some money followed by rewards. he is always motivated with the rewards and incentives. Labour includes both skilled and unskilled. A labour is employed for both mental and physical works.

• This factor is highly perishable. Loss of labour cannot restore the time and work done by him.
• No reserve price. If he lose the work, the amount cannot paid to him.
• The work done by a labour is always different to each other. It cannot be same. (Skilled worker and unskilled).
• Labourer is inseparable. All factors are separate entity to firm and a person whereas, labour is same.
• Technology or other factors can replace the Labour. (Very practical point).

Capital

Capital is the wealth of a firm or community which is used to produce more wealth. Capital may be anything in the business either stocks, assets like machinery, Humans, etc. Generally Capital is used to indicate assets in the organisation.. Capital has the capacity to earn income. Simply, Capital is the amount of wealth which is used for further production to earn income. 

It is again classified into:

• Real capital includes for example, physical assets, Plant and machinery, etc
• Human capital includes Human skills, Knowledge, ability etc
• Individual capital includes Personal property and assets
• Social capital includes Roads, bridges and canals.
• fixed capital includes expenditure incurred on assets like machinery.
• variable capital includes regular expenses on daily wages, raw materials etc..

For more detailed information about types of capital, please visit:     https://economics-subject.blogspot.com/2021/06/types-of-capital.html

Organization or Entrepreneurship

• Organises and combines all factors of production.
• He supplies the goods after production.
• He pays remuneration or income to all factors of production.
• He takes remaining amount as profit (Surplus amount).
• He is the risk taker.

Factor payments

Every factor of production receives income for the work or contribution as a reward. It is the motivation for the labour and organiser to work more productively. The payment is done based on the roles of factors of production.

• Land - receives rent as income (Contract rent and Economic rent)
• Labour - Receives wages as income (Money, Time, peace and Real wage)
• Capital - Receives interest as income (Gross interest and Net interest)
• Organiser or organisation - receives profit or surplus amount as income (Gross profit, Net profit, Normal profit, Super normal profit etc).

Division of labour

It is the process of assigning different works to different labours in the firm. Dividing work among the labours based on abilities and skills is called as division of labour. 

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The end

Hope it is helpful to you.