BEST HIGHER SECONDARY SCHOOL CHAPTER 7

Definition
A factor of production may be defined as "that good or service which is required for production." A factor of production is indispensable for production because without it no production is possible. It is customary to attribute the process of production to four factors, land, labour, capital and organisation.

Land
Land not only consists of mere surface of land but also includes all the natural sources such as oceans, mountains, forests etc. Marshall defines land as " By land is meant materials and forces which nature gives freely for man's aid, in land, water, in air, light and heat." Thus land is a significant part of production which facilitates in the production of goods and services in one way or the other.

Labour
Labour refers to the act of working for some monetary benefits against physical and mental activity. Labor is the mental and physical efforts of humans (excluding entrepreneurial organization) used for the production of goods and services. Labor includes both the physical effort of factory workers and farmhands often associated with labor, as well as the mental effort of executives and supervisors . It does not comprise of any leisure activity. It includes the services of a factory worker, any professional workers such as engineers, doctors, teachers, lawyer etc. If a person paints or sings in order to please someone or himself without any target or for monetary benefits he won't be called a labour. But if he intends to sell the painting or sing against any monetary reward then it involves labour. Thus labour forms an essential aspect of production.

Capital
Capital means all human-made materials such as tools, equipments, infrastructure, machinery, seeds, plants, modes of transportation such as rail, road and air etc. In general it encompasses all affluences eliminating land as land is utilised for supplementary production of affluence. Now-a-days, capital not only includes physical capital but also involves human capital which is defined as "process of increasing knowledge, the skills and capacities of all people of the country." Human capital is more vital than the physical capital since without human's interference the materialistic capital cannot be utilised effectively. Prof. Galbraith defines as "We now get the larger part of our industrial growth not from more capital investment but from investment in men and improvements brought about by improved men."

Entrepreneurship
Entrepreneurship is the special sort of human effort that takes on the riskof bringing labor, capital, and land together to produce goods. Entrepreneurship is the factor that organizes the other three. Without someone to organize production, the other three factors do NOT produce. A key component of entrepreneurship is risk. This resource takes the risk of organizing production BEFORE anything is produced and with no guarantee that production will be successful.

BEST HIGHER SECONDARY SCHOOL CHAPTER 7

Characteristics of Labour Some of the characteristics of labour are as follows: 1. Labour is In-separable Form of Labourer A Labourer cannot work without his labour. Whatever he performs is a result of his mental and physical exertion. Both cannot be separated from each other. The main driving force of a labourer is his labour. It may not happen that a labourer remains at home and ask his labour to go for work. It is covert i.e. it is present within a human being. 2. Labour is Indispensable for Production As a matter of fact production is not possible without labour. In other words production is the aftermath of labour. Labour is necessary to activate production process. Every aspect of production ranging from purchase of raw material to final distribution in the market entirely depends upon labour. As a general rule, efficient labour gives efficient production. 3. Labour is perishable A very important characteristic of labour is that it is perishable by natural law. It perishes with the passage of time. Since labour is present within a human being, therefore end of a laboures life means an end of labour as well. A loss of labour means loss forever. 4. Labour is an Active Factor of Production Labour gives production itself. Nothing has to apply to start work except labour itself gives the performance and thus activates the production process. A noteworthy feature of this characteristic is that other factors of production cannot produce any thing without aid of labour. 5. Labour Sells his Service not Himself Labour falls within the category of service industry. It is an intangible product of labourer for which he is free to sell it to anyone he likes. The place where he is free to sell it to any one he likes. The place where he works and the people, who hire him, actually hire the labour service not him. 6. Labour is Both Means and Ends of Production Labour is not only meant for producing. They are fully entitled to use what ever they have produced. Being human being the labour works for the satisfaction of their wants and their labour act as the means to achieve their ends i.e. their satisfaction. 7. Labour is mobile Avery important characteristic of labour is that it is mobile in nature. It may be shifted from one place to another whenever and wherever it is needed. But how ever the laborers when get set at the particular working place not very easily move from there because they may be fully satisfied working there. 8. Labour cannot be Calculated

BEST HIGHER SECONDARY SCHOOL CHAPTER 7

The amount of labour spent on a particular work cannot be calculated. It is almost impossible even to assume that how many units of labour are required to perform a particular work. Labour therefore is an immeasurable factor of production. 9. Labours Differ in Efficiency Alls the laboures are not alike there ability to do a work i.e. the labour differ from each other. A labour having high mental and physical capabilities to do a work differs from that having low physical and mental capabilities. This efficiency depends on a number of factors.

Capital as a factor of production possesses certain peculiarities. Capital is man-made: Capital is not a gift of nature. It is a produced means of production, Knut Wicksell therefore defines capital as single coherent means of saved-up labor which is accumulated in the course of years. Capital grows out of savings:Capital is the result of saving. Saving involves postponement of present consumption. People save for various motives. When saving is high capital will also be high. Capital depreciates: The wear and tear in a capital asset is known as depreciation. When machines are used continuously beyond a certain limit, it cannot be used for further production. Capital is variable: Capital is variable in the sense that it can be increased or decreased at will. In other words, capital is elastic in nature. Capital is mobile: Among the four factors of production, capital is the most mobile factor. Land lacks mobility in the geographical sense. Labor mobility is not perfect due to economic, social, political, religious and cultural reasons. Entrepreneur also lacks mobility. Capital can be easily sent to any part of the world. Capital is a passive factor: Capital by itself cannot produce anything. Capital has to be combined with land and labor in the process of production. For example, even the costly computer may not be of any use unless it is operated by a person. Capital is productive: Capital is demanded because it increases the productivity of land and labor. A farmer with the help of a tractor or a fisherman with the help of a boat can produce much more than without them.

Characterisitcs / Features of Land 1. Land is a free gift of nature Land is a free gift of nature to mankind. It is not a man-made factor but is a natural factor.

BEST HIGHER SECONDARY SCHOOL CHAPTER 7

2. Land is a primary factor of production Though all factors are required for production, land puts foundation for production process. Starting point of production process is an acquisition of land. So, it is a primary factor. 3. Land has perfectly inelastic supply From society's point of view, supply of land is perfectly inelastic i.e. fixed in quantity. Neither it can be increased nor decreased. Simply, you can not change size of the earth. But from individual point of view, its supply is relatively elastic. 4. Land has gradability Land varies from region to region on the basis of fertility. Some land are more fertile and some are not at all. So, fertility wise, grading of land is possible. So, in this way, land has gradability. 5. Land is a passive factor Land itself doesn't produce anything alone. It is a passive factor. It needs help of Labour, Capital, Entrepreneur, etc. Like labour and entrepreneur, it doesn't work on its own initiative. So it is a passive factor. 6. Land may have diminishing returns Here, return means quantity of crops. By using fertility of land with the help of capital and labour continuously, returns gets diminished because of reduction in fertility. 7. Land has a derived demand Demand for agricultural goods is a direct demand and for producing such goods, land is indirectly demanded. So, as a factor, land has a derived demand from consumer's point of view. 8. Land has no social cost Land is a gift of nature to society. It is already in existence. Land is no created by society by putting any efforts and paying any price. So, for society, supply price of land is zero. But, because for the purchase of land or for its improvement, individual has to pay certain price, so its supply price for individual is not zero. 9. Land is a indestructible factor Land is durable and not perishable. It has a long life. No one can destroy the land. The power of land is permanent and indestructible. Its fertility can be destroyed as well as restored by human efforts.

BEST HIGHER SECONDARY SCHOOL CHAPTER 7 10. Land is perfectly immobile Mobility means ability to move. Movement of land from one place to another is impossible. Thus, physically, land is perfectly immobile. But it has certain occupational mobility because it can be used for variety of occupations, like agricultural use or for construction of houses. 11. Land has a site or location value Every piece of land has its certain site or location value. Such value depends upon quality of its location. Land near to sources of raw materials and other infrastructure facilities always enjoy high site value. Here accessibility of land plays an important role. 12. Land earns rent as a reward for its use Rent is a reward for the use of land. Classical economists like Ricardo connected rent with fertility of land whereas modern economists like Marshall and Javons stated that land earns rent because of its scarcity.