Chapter 2 ela emel Mm Taeveltrad cela) Learning objectives By the end of this chapter you will be able to: define and give examples of land, labour, capital and enterprise explain the nature of each factor of production analyse the influences on the mobility of factors of production discuss the causes of changesin the quantity and quality ofthe factors of production identify the payments to the factors of production Introducing the topic 9 lving longer. in 1360 the average life expoctancyin Ranplacesti was-46 years, By 2015 aysia was oven more dra 1 had riven to 72 years, Thencreaye int rom 37 years to /7 years and the Japanese could expoct to live unt 73 in2018, Figure 2.1 shows how the increased ow global average life expectanc Scanned with CamScannerTS) 19S 1970 197s 196) 1985 198) ISG TOO INS W010 OTS Fig. 2.1: Global average life expectancy, 1960-2015. Why can we expect to enjoy a longer lifespan? 2.1 The importance of factors of production People are living longer because healthcare, education, housing, sanitation and nutrition have improved. This, in turn, s because of increases in the quantity and quality of factors. of production. Faciors of production is another term for economic resources. Chapter 1 explained that economic resources are used to produce goods and services, and that they are in limited supply. Most economists identify four factors of production: + land = ladour © capital <4 enterprise Some economists, however, claim that there are really only three factors of production and that enterprise isa special form of labour Land Land in general terms includes the earth in which crops are grown, and on which office’ and factories are built, but in economics it hes a wider meaning, It covers any natural resource | * which ic used in production, So besides the land itself, it also includes what is beneath the lang, such 3s coal, what occurs naturally on the land, for example rainforests, and thesea, | oceans and rivers and what ss found in them, for exampte fish, To attract foreign tourists, for example, a travel company will make use of water in its ‘suitesming pools, good climate and beaches in the holidays it provides. Similarly, the land sed by a salari path includes not anly the grass on which some of the animals graze, but © also the animals themselves Scanned with CamScannerLabour th the mental and the physical effort, aeoee yay “ asteel worker and a bank Involvedtn producing goods and services. Aroad sweeper "anager all contibute ther tabout Contusingy, ave sometimes also referto human capital. Thismeans the education, training and experience that workers have gained, The more human capital workers have, tne more they should be capable of producing. Capital Capital would naveto be used inthe diversion of the course of ariver,Capitais any human made (manufactured) good used to produce other goods and services. It includes, for ‘example, offices factories, machinery, railways and tools, Capital is also referred 102s eapltal goods and producer goods. Ecanomists distinguish between capital and consumer goods. Capital goods are not wanted for their own sake, ‘but for what they can produce. in contrast consumer goods, such 25 food, clothing and entertainment, are wanted forthe satisfaction they provide to their owners, In deciding whether a goad is capital or a consumer goad, itis necessary to consider the user is and the purpose ofitsuse. Acomputer, for example, will be a capital good ifit « Used by an insurance company to process insurance claims - its producing a service. f, however it's used by a person to play games, itis a consumer good. ho ptr genta ee neh ete nbng cata ns anh a gi “a achocoatebar 4 hacer “€ achd'stoy if alarm tractor =a fe adentst’s di f acourtroom, Enterprise Enterprise the willingness and ability to bear unc nes 7 meen and to make decisior a husmets Fotueyrencurs ate the people who organise the other factors ol prediere and vahio crucially bear the tisk of losing thew mon Precluction, ey if their business fail Some ol the tisks laced by and how to 1 Sore of te usks laced by any business can be insured against ioe re a and thelt. Other Wks, however, have to be borne OTe fire, floor ne by entreprenours, This i oh past evens, and so eannot be insured nee oe ain risks of production, Scanned with CamScannerChapter 2: Factors of production The two key tasks of an entremreneut can be cartied out by diferent people. tn large companies, itis the shareholders who tun the risk of losing thelr money il the companies go out of business, whilst the managing director takes production decisions and organises the factors of production, 2.2 Mobility of the factors of production The mobility of land Most lang 's e¢cupationally mobile, This means that itcan be used for a number of purposes. chiscu houses. Trees c tly being used for farming may be used instead to build n be used to make tables or sleepers for ralay ines. Lang, 9 its traditional sense, is geographically immobile tis not possible te move a section of lanc from Sri Lanka to india, for example. Some forms of land, in its wider meaning, 7 Chapter 48 immobility can be moved to a certain extent, For example, the course of rivers can be diverted and Olresources wildlife can be moved. reecniney The mobility of labour The mobility of labour varies. Some workers may find it ficult to move from one area of the country to another, or from one country to another (geographical immobility), and some ‘may find it dificult to switch from one type of job to another type (occupational immobility) The causes of geopraphical immobility include: + Differences in the price and availability of housing in different areas and countries. Workers who lose their jobs in poor ateas may not be able to take up jobs in rich areas because they cannot afford or find housing there. + Family ties, People may de reluctant to leave the country they are currently living in because they do net want to move avvay from frends and relatives + Differences in educational systems in different areas and countries. People may not be willing to move toa jab elsewhere if it disrupts their children’s education + Lack of information. People without jobs, or those in poorly paid jobs, may stay where they are because they are unaware of job opportunities elsewhere, + Restrictions on the movement of workers. Itis often necessary to obtain a work visa to workin another country and these can be limited in supply. There ate also a number of causes of occupational immobility, Again there may be a lack of information about vacancies in other types of jobs, The main cause, however, isa lack of appropriate sills and qualifications. A shortage of doctors cannot be solved by hiring bus drivers! . The mobility of capital The geographical and occupational mobility of capital varies according to the typeof capital goods. Some types of capital goods can be transterred from one part af the country to another, A photocopier used by a bank in one area of a country can be sold to, and then ‘used by, a bank in another area. A coal mine and a dock, however, ae fixed in position and Scanned with CamScannera a are algo occupationally immobile since $0 ate geographically immobile, They are geographically immo specific purpose, In contrast. | ned, is they have been made for a | cannot bee : van used onyinaly by a book publisher may be bougntandemployed BY AO ora, todatnbatette products, Similan office block may be used fora variety of piri, may house a call centie of an accountancy FM, Ercan col that are peoRraphically rie The mobility of enterprise Enterprise moves when the people who carry out the functions move. These people are called entrepreneurs. The mobility of enterprise depends on the mobility of entrepreneurs involved in being an Enterprise is the most mobile factor of production. The skil entrepreneur can he applied in every industry. Someone who has borne uncertain rises, and organised factors of production in the car industry should be able to do this in, for cexampie, the textile industry too, Apart from being occupationally mobile, enterprise is also .geoe" aphically mobile. Someone who has been successful in starting up and runninga business in one country is likely to be successful in another country also. " Immobiltyis the opposite of mobility soif you know the causes of an increase in immobility of factor of production, itis easy to work out the causes of an increase in mobility of that factor. For example, if ceductionin training will cause an increase in occupational immobility of labour, an increase in training will ncrease the mobility of labour. Ronn tae 2.3 Quantity and quality of the factors of The quantity of land production The amount of physical land in existence doe degree of soil erosion which reduces the su }ount of land wecla nation which increases, can change quite significantly, Rainforests an 's not change much with time, There is 2 certai® Ply of agricultural land, but also a certain ‘ts supply. Other natural resources, howeve" ‘© currently dectining at a rapid rate Scanned with CamScannerSome natural resources are renewable whilst others ate non-tenewable. Renewable resources. for example wind power, are replaced by nature and can be used agar ane again Incontrast, non-tenewable resources, for example pold and oil, are reduced by use. There i 2 tisk that renewable resources can be turned inta non renewable resources if they are over and the hunting, exploited, thats used at a faster rate than they are replenished. Over fishin of ildife can diminish numbers to a point where they cannot be restored The quality of land There are a number of reasons why the quality of natutal resources may increase. Fertilisers canbe applied to fields to increase the fertility of the land, The purity of rivers, and so the health of ish in the rivers, can be improved by stopping firms polluting the rivers. Providing {good drainage can increase the yield from fruit trees. The quantity of labour quantity of labour is influenced by two key factors. One isthe number of workers available and the seconds the number of hours for which they work ‘The number of available workers is determined by: + The size of the population. The larger the population, the more warkers there are likely tobe. + The age structure of the population. A country with ahigh proportion of people of working age will have more workers than a country with the same population size, but a higher proportion of people who would be too young or too elderly to work, + The retirement age. The higher the retiement age. the more potential workers there willbe. +The school leaving age. Raising the school leaving age would reduce the number of workers. + Attitude to working women. Countries where it's acceptable for women to work have more workers to draw on Those people who are working and those seeking work form the labour force. Thisis also knowin a5 the workforce or working population. Those of working ageare people between the school leaving age and the retirement age. n Singapore, this covers people aged between 16 and 62, In the UK, this covers people aged between 16 and 66. Not al of these people, however, are in the labour force, Some may bein fulltime education, some may have retited and some may be sick or disabled. — The number of hours which people workis influenced by {among other factors): «the length of the average working day, for example full-time workers in the USA tend to work for longer hours than those in European Union countries + whether they wort full or part-time, for example more peopleiin the UK work part-time than those in France «the duration of overtime # the length of holidays taken by workers, ‘+ theamount of time lost through sickness and illness. ‘As with all the factors of production, itis not just the quantity of labour which is important, but also the quality, More can be produced with the same number of workers ifthe workers become more shilled. An increase in productivity, including labour productivity, is 2 major cause of an increase in a country’s output. Scanned with CamScannerQ- we Find out what has hap ithaschanged. trothesite ot yourcountry'stabourforeeinthelast ten ye ypenedtothesize The quality of labour The quality of labour can be Improved as a result olbetter education, better taining, ng aoaae cy hcyre. A briter educated, beter tained and more experaneay plceianee and baer s, workvaith mare comaley magne iowurfocewilbeaberocary tard as wore more COME May see eantncnt ced produce moreand better uaty products. A healthicr labour force ya poabiets covonrate more be stranger for ary manual tasks and wil have fever da, sick The quantity of capital The quantity of capital sinflsenced by investment and tends to increase with time. Every year some cap tal goods physically wear out and some become outdated, for exampie a form barn may fall down and some machinery may be replaced by newer, more eficiant machnery ‘New capital goods, however, usualy take the place of those goods, which firms are unable (or choose not) to use anymore, The total value of the output of capital goods produced ‘seelerred to as gross Investment. Some ofthe capital goods being produced wil be replacing those which have worn out or become obsolete. The value of replacement capita 's called depreciation oF capital consumption, Net investment minus dep and there 5 the vale ofthe eatra capital goads made. is equal to gross imestnt ation Tar example f 9 country produces $200 milion eapital goods one ye! Drecaton of $Onuicn, net investments $130 milign The county sit" mote aptal ood, These adtional capital goods ullallowit to produce more go00S 72 c¢ sionally, pr0ss investment m, . soca ood tobenut af ant ay be lower than depreciation, This means that some! ™™? ‘ “SNGrenot replaced. Thiss said to be negative net investme™ me fe cartlrata conse money napa ey 07 and capital, Imeanhuran mad rd ean atl Remember: when economitreerto capital! products, ‘eryandottce buildings, that are used to produce a —_senenenemen’ Scanned with CamScannerThe quality of capital Advances in tech Automation in car manufacturing ’ B Pree a : ae _Afiem is currently using 12 machines. Each machine is capable of producing 00 units of ‘output. it anticipates that by the end of the year, 3 ofits machines will wear out. ‘a ifitexpects to sell 1600 units next year, how many machines wil it buy? 1b Why in the future may fewer machines be needed to produce the same output? Ecauae | Inyour group, discuss how edvanc “a students learning experience b people's medical care food production. technology have changed: The quantity of enterprise The qu tity of enterprise all Increase if there are mote entrepreneurs. A good education system, including university onomics and business studies, may help ta develop entrepreneurs in an economy, Lower tases on b1ins’ profits (couparate taxes) and a reduction in government regulations may 0 COUNsES In more peopleto set up their own of immigrants become entrepreneurs businesses. Sometim a disproportionate numb These are people who have ad the drive to leave thelt home countryin search of abetter life and this drive often leads them to become entreprencurs inthe new country. Scanned with CamScanneroctets ed The quality of enterprise e. More experienc ulenteepreneurs hiv led. The knovslecy nple, the produc wuccess of an vals, cam help the Gro inyour group ‘8 Research, imeach case, which entrepreneur founded the following frm and wr has a university degree: 1 Limetoad, an online women's fashion firm: HW Lenove,a computer firm Wi The Siverbird Group, a property, media and entertainment fim iv Sofizat, an internet marketing firm. __b Find an example of a successful entrepreneur who does nat have a degree. 2.4 Payments for factors of production Payme are made for the use of factor: +. For bearing uncertain risks and organising the athe are) profit, Land receives rent and interest is a paym actors of produc for capital entrepreneur You should know: The four factors of production are land, labour, capital and enterprise. Land is a term covering all natural resources. Some natural resources are renewable whereas others are non-renewable, Winitst most tand is occupationally mobile, land in its traditional meanings geographically immobite. Labour involves the mental and physical effort workers put into producing goods and services. The quantity of labours influenced by the number of workers and the number of hours for which they work. = The size of the labour force is influenced by the size and age structure of the population, tearing ape, the retirervent age and atitudes to women working, eee! The qustey and ee nebiityo labour can belneeased by better education and aining The geographical it ol ‘may be caused by lack of housing and i vacancies, tamilyties and the need to gan avisatoworkina diferent ean rat about Capital goods are used to make other goods and services, Net investment increases a country’s stock of capital goods, Enterprise involves taking risks and making production decisions, improved education, lower tates and less regulation can encourage enterprise successful entrepreneurs tend to be occupationally and geographically mobile, Scanned with CamScannerMultiple choice questions 1 ich tnt of vedic toms unctin stoma declan ak A coal a serie € Labour D Land 2. Whichtype ot A Copta B Enterprise © Labour D Land or of production is a road? 3. Acountry produces 3000 new capital goods in a week, 500 of these replace worn out capital poods, What isthe net investment made? A 500 ® 2500 © 3000 D 3500 A Capital w Enterprise © Labour : D Land Four-part question a Identity two non-human factors of production. (2) 1b Explain two causes of an increase in the quantity of labour, (@) € Analyse whiy the mobility ol labour may increase overtime. (6) Scanned with CamScanner