Ch-2 1st Paper

Factors of Production
Introduction: Production in General means to create something in order to get profit after selling the product.

Types of Production :

1. Land
2. Labor
3. Capital
4. Organization

Concept of Factors of Production: The factors of Production are resources that are the building blocks of the
economy.

1. Land: Land means the surface of the Earth or the soil. In economics, it means All the natural resources
that are used in Production. Humans can never create Land.
2. Labor: Labor means physical effort. Labor is the physical and the mental effort which people
contribute in Production activities. Without exchange of money can not consider as labor.
3. Capital: Capital is that portion of people's asset that is not used for consumpton but saved to be used
in creating asset or income in the future.
4. Organization: Organization combines the other Factors of Production i.g. Land,labor,Capital.

Characteristics of land:
1. Free gift of nature: Only nature given resource in Production is Land. Humans can not create
Land.

2. Fixed Quantity: The total quantity of land does not undergo any changees it is limited &
cannot be increased or decreased with human efforts.

3. Land is permanent: All man made things are perishable and these may even go out of
existance but land is indestructible.

4. No Production cost: As man can not create Land for that there are no Production cost of land.

5. Land is primary Factors of Production: Without land Production can not be started.

6. Land is a passive Factors of Production: As land can’t produce a product by itself for that land
is a passive Factors of Production.

7. Land is immovable: Land can not move from one place to another.

8. Land has some original industrictible powers: The natural powers of land which man can not
destroyed.

9. Land difers in fertaility: Fertaility of land differs on different pieces of land one piece of land
may produce more and the other less.

10. Supply of land is inelastic: Same as 2 & 3

 11. Land has no supply price: Same as 4

12. Land has many uses: We use land for Production and agriculture.

Importance of land

 Original and fundamental factor

 Fulfillment of basic needs
 Agriculture development
 Base of Industry
 Economic development
 Business development
 Bssis of Production
 Improvement of Standard of living
 Main basis of Production
 Fulfilling secured shelter & demand of cloths.

Labor
Labor is the physical and mental effort which people contribute in Production activities.

Features of Labor

 Labor is the physical and mental efforts of worker

 Labor has to have monetary exchange
 Labor has its mobility
 Labor can not be preserved

Characteristics of labor

1. Inseperable: Labor performance &Labor can not be seperated from each other
2. Indespensible : Production is not possible without Labor
3. Perishable: The service of labor can not be storef
4. Factor of objective: one side Labor is a factor of Production on the other hand it is also the
objective of Production as they produce the product meanwhile they consume the product
5. Mobile: Labor is a factor has some mobility than other Factors as it can move from one place to
another
6. Law of supply: If wage of a laborer increase then many of them want rest
7. Bargaining power: Labor have the bargaining power if the wage of labor is low they can bargain
8. Human element: People ( human ) supply or human do the task for that labor is considered as
human elegant
9. Nontransferable ownership: The ownership of labor can not be transferred as any utilities don’t
create in labor
10. Personal presence: To perform the task the presence of labor is a must
11. Live factor: Same as 10
12. Increasing supply of labor is time consuming: It is not possible to increase labor supply if required
because of population
13. Higher wages do not increase labor supply: Same as 12

Iimportance of labor:
  In agriculture sector
 In industrial sector
 Proper utilization of natural resources
 To build infrastructure
 Utilization of capital goods
 To create capital
 To increase Production
 Means of earning
 Economic development
 To increase National income
 Improvement of Standard living
 Innovation

Division of labor

the assignment of different parts of a manufacturing process or task to different

people in the Right place in order to improve efficiency is known as division of
labor.

Advantages of Division of labor

1. Right person at the Right job

2. Greater efficiency
3. Better quality of labor
4. Saving of time
5. Economies of large scale Production
6. Increasing National income
7. Less learning period
8. Invention & Innovation
9. Less stress
10. Wider market
11. Benefits to society
12. Diversity of employment

Disadvantages of division of labor

1. Monotony in work
2. Lack of Responsibility
3. Kills the creative instinct
4. Greater interdependence
5. Loss of job pride
6. Reduced mobility of labor
7. Retarted personality
8. Decline in craftsmanship
9.
10. Evils of factory system
11. Pollution of environment
Mobility of labor

1. Geographical mobility: When a worker move from one place to another within a country or outside the
country is Geographical mobility
 Internal mobility
 International mobility

2. Occupational mobility: The movement of workers from one occupation to another.

 Horizontal mobility: one occupation to another belong Same job
 Vertical mobility: Moves to another occupation with upper grade

3. Industrial mobility: Movement of labor from one industry to another in the Same occupation
4. Stair mobility: Progrssion from one level to another within a same profession.

Capital

Those durable produced goods that are turn used as productive inputs for further Production is capital.
Such as Investment.

Characteristics of capital
1. Man produces capital
2. Capital is a passive Factors of Production
3. Capital is produced means of Production
4. Capital is veriable
5. Capital is movable than other Factors of Production
6. Capital depreciates
7. Capital is stored up labor
8. Capital is destructible
9. Mobility
10. Source of income
11. Tied with effort

Importance of capital

 To increase Production
 To increase labor efficiency
 To assist large scale Production
 Exapansion of firm
 To reduce cost
 Proper use of natural resources
 To create economical infrastructure
 Employment
 Improvement of Standard of living
 Supply of Factors of Production

Creation of capital formation

1. Creation of Savings: part of National or personal income which is not spent on consumpton of goods
rather To save this amount for further use.
 Capacity To save
  Willingness To save
2. Mobilization of savings: to direct the funds accumulated through the savings of the government or
household towards the businesses, entrepreneurs, or government for further investment in producing
goods and services. Savers first deposit savings into any financial institution.
3. Investment of savings in real capital: The third steps of capital formation

Organization
Organization is two or more people who work together in a structured way to achieve a specific goal or set of goals

Features of organization:

1. Group of two mor more people

2. Collective effort
3. Objective
4. Division of labor
5. Distribution of Responsibility & power
6. Relation
7. Distribution of work
8. Risk bearing
9. Coordination
10. Proper utilization of human resources
11. Flexibility

Importance / functions of organization

1. Procurement of element and coordination

2. Planning
3. Production management
4. Distribution of Responsibility and power
5. Distribution of work
6. Risk bearing
7. Marketing
8. Coordination
9. To increase efficiency
10. Division of labor
11. Proper utilization of human resources
12. Research and development functions
13. Determination of objective

Classification of organization :

1. Sole proprietorship business: Owned by a single person. The owner of the business has total control over
the operation of the business for that he is able to choose what the company sells,who to hire to run the
company. Owner enjoys the whole share of profit and bear the whole liability.
2. Partnership organization: When minimum 2 and maximum 20 member form a business and operate the
business and share the profit and bear loss as per the partnership deed is known as Partnership Business.
3. Joint Stock Company: A business which is formed according to the Partnership act 1994 with a limitation of
50 member or the number of member depends upon the number of share holders is known as Joint stock
firm
4. Cooperation society: A cooperative is "an autonomous association of persons united
voluntarily to meet their common economic, social and cultural needs and
aspirations through a jointly owned and democratically-controlled enterprise".
Cooperative society is formed and operated under the cooperative act 2001.
5. State organization: A organization which is formed and operated by the legislatives of the State or the
order of The President is known as State organization.
6. Business alliance: When a few business entities come together with the hope of getting additional benefits
and conduct business under same management it is called business alliance.
7. Joint venture: A joint venture is a mutual agreement between two or more companies through an
individual entity emerges. For ex- Coca-Cola is marketing products worldwide with Nestle to create new
market opportunities,enter International markets, share costs and financial risk,increase Profitability &
increase the use of technology.