Factors of Production

The resources used to produce goods and resources

Types - Land, Labour, Capital and Enterprise

Land - all the natural resources and anything that is a gift of nature

Examples - earth, trees, wildlife, land used for agriculture, water bodies, oil, coal

Factors reducing the supply of land:

• Factor depletion of nonrenewable resources

• pollution of water and air

• reduction of potable water

• soil erosion

• extinction of animals

• deforestation

Factors increasing the supply of land:

• Reclamation of land

• Improvement in soil fertility

• Increase in rent to persuade more landowners to release their land for productive uses

• New discoveries of fossil fuels and other natural resources

• Making use of previously unused natural resources

• Planting and growing more trees

• Recycling and reusing

Factors increasing the quality of land:

• Fertilisers and better land management which can improve soil conditions

• New technologies which can improve the resilience of plants

• Reducing the use of chemicals in farms

• Reducing pollution

• Using organic and more humane animal farming methods

Labour - refers to the physical and mental effort put in by people at work while producing goods and services. The human resource which aids productive activities.

Factors affecting the supply of labour

• Changing school leaving age

• Change in the size of the population

• Change in the retirement age

How can quantity of labour be increased:

• An increase in wages

• An increase in the size of the population of the working age

• Improvements in healthcare reducing the number of days lost

• Increasing the retirement age

Factors affecting the quality of labour:

• Providing vocational training and education to improve workforce skills

Capital - refers to the tools or man made resources that aid productive processes by combining factors of production, to make production easier. Examples: screwdrivers, engines, tractors, hammers, computers

Factors increasing the quantity of capital:

• Decision by producers to produce more capital goods

• An increase in investment payments which will increase the amount of capital

Factors increasing the quality of capital:

• Advancement in technology which increases speed and accuracy

Enterprise - refers to the ability to organise production in a firm. An entrepreneur is a business knowhow which is able to control and manage these firms by taking risks and bringing together the factors of production to produce goods and services

Factors increasing the quantity of enterprise:

• An increase in the prices consumers are willing to pay for goods and services which will increase the profits and encourage production

• A fall in the number of paid jobs available and a rise in unemployment - may result in more people starting up their own businesses

Factors increasing the quality of enterprise:

• More and better training courses for people

• More and better business advice and support

Factor rewards - the payments for different factors of production which they receive after participating in productive activities

Land: Rent

Labour: Wages

Capital: Interest

Enterprise: Profits; when a firm earns more revenue from the sale of its products than it costs to make the product.

Mobility - refers to the ease with which factors of production can be moved from one productive activity to another without incurring significant costs or loss of output.

Why is it important?

Moving factors of productions to more productive activities from less productive activities increases the total output of goods and services. It allows different factors of productions to be moved into their best possible uses. Enables firms to improve the ways they produce goods and services as the quantity and quality of factors of productions changes. It also allows firms to change the type of goods and services they produce with the change in human needs and wants.

Types of factor mobility - occupational and geographical

Occupational mobility: refers to the ability to move factors of production between different productive tasks.

Geographical mobility: the ability to move factors of productions between locations.

Labour mobility: many workers are occupationally immobile. This is because they cannot change jobs easily because they have specific skills. For example, a doctor cannot become a lawyer overnight. Workers may be geographically immobile because they are reluctant to move to jobs in different locations because of family ties and because moving homes can be expensive.

Land mobility: land is geographically immobile and it has very few alternative uses. Therefore, many natural and manmade resources have specific characteristics and functions that may limit the range of productive activities they can be used for.