CHAPTER 2: Factors Of Production



1. Production Process- An economic process of producing goods & services to satisfy human wants & to maximise profits.
2. Factors Of Production- Inputs into the production of goods & services.

3. 4 factors of production
Land includes:
a) Raw Materials
b) Landscapes
c) Geographical Location
d) Ports

4. Characteristics of Land
a) Immobile
b) Climatic condition, mineral deposits, etc are gift of nature.
c) It is limited in supply.
d) It is subjected to the law of diminishing returns.
e) Climatic Conditions

5. Labour- A number of skilled person who works for wages.

6. Characteristics of Labour
a) A labourer sells his services only.
b) Labour services cannot be stored and separated from the worker.
c) Labour has greater mobility than land.

8. Mobility of Labour- The movements of the labour.

9. 2 types of Mobility Of Labour
a) Occupational Mobility of Labour
b) Geographically Mobility of Labour

10. Occupational Mobility of Labour- Transfer of labour from one occupation to another.

11. 2 types of Occupational Mobility of Labour
a) Horizontal Mobility- Change of job involving a changes of duties. b) Vertical Mobility- Change of job involving a change in the level of responsibility.

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12. Obstacles (prevention) to Occupational Mobility of Labour

a) Lack of necessary skills & qualification
b) Older worker are less mobile than younger workers.
c) Having close ties with colleagues & supervisors.
d) Insufficient information about job availability.
e) Unwillingness to take risks by changing job.
f) Entry requirements. E.g.: Pilot must have a minimum height & good eyesight.
g) Under a contract. Contractual obligations.

13. Geographical Mobility of Labour- Movements of labour from one place to another.

14. Obstacles to Geographically Mobility of Labour
a) Political instability in a country.
b) The cost of moving from one place to another.
c) Sense of belonging to one’s country.

15. Division of Labour- Specialisation of each task involved in the production of good or service.

16. 3 basic types of Division of Labour
a) Geographical specialisation of labour - A country can specialise in the production of a particular good or service.

b) Regional division of labour- A particular region in a country specialise in the production of certain types of goods or services.

c) Occupational division of labour - Each occupation is subdivided into smaller operations. E.g.: In a car assembly plant.

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17. Advantages of Division of Labour

a) Save time as workers do not have to move from one place to another.
b) Increase in productivity when a worker become expert in doing one tasks.
c) Use of machinery can also increase productivity.
d) Requirement of specialists.
e) Diversification of employment.
f) Increase in output.


18. Disadvantages of Division of Labour
a) Lack of ownership.
b) Doing same work might be boring.
c) It can causes immobility of labour.
d) Little room for creativity & workers might become boring.

19. Productivity of Labour- Output per worker.

20. Calculate the Labour Productivity
Labour Productivity= Total Output / No. of workers

21. Ways to raise labour productivity
a) Increasing the wages or other benefits to the workers. E.g.: Fringe benefits, medical etc.

b) Improving worker conditions. E.g.: Installing air-conditioner, more modern facilities etc.

c) Offering promotion opportunities to workers.
d) Hire new young people into the organisation to shares new ideas.
e) Ensuring good management.
f) Provision of social services by the government. E.g.: Housing, transportation facilities etc.
g) Providing sufficient education & proper training opportunities.

22. Capital- An investment in goods that can produce other goods & services in the future.

23. Types of Capital

a) Working Capital- Stocks of goods that varies with the level of output. Raw materials. E.g.: Output increases, amount of working capital also increases. Output is zero, amount of working capital is also zero.

b) Fixed Capital- Physical assets which do not varies the level of output varies. Machinery. E.g.: Output is zero, fixed capital will not change.

c) Social Capital- Increase the productivity of the labour force in a country. Educational, housing facilities etc. Usually provided by the government.

24. Capital Formation-
Country’s ability to increase its assets or capital whereby new real assets are created. There must be savings for public. Opportunity cost is involved. Capital formation can increase the wealth of the nation with more goods & services being produced.

25. Reasons for low capital formation in developing country
- In developing countries, the rate of capital formation is low because of the poverty. With insufficient level of savings, there will be low capital formation. Consequently, there will be less economic growth & the country remains poor.

26. Several ways the government must increase the rate of capital formation

a) The governments of developing countries take a loans from international agencies. The government can also borrow from the governments of developed countries.
b) Attracting foreign investment- Create employment.
c) Better infrastructure will encourage foreign investors.
d) Aids & grants.

27. Enterprise- Activity of managing business.

28. Entrepreneur responsible for arranging how production should take place, making the following decision: How, how much, for whom to produce. The entrepreneur also co-ordinates all the factors of production to produce goods & services.

29.Functions of an entrepreneur
a) Co-ordinates the factors of production.
b) The entrepreneur will undertake research & development.
c) Responsible for marketing his/her product.
d) The entrepreneur undertakes the risks & is responsible for all the decisions.

30. 2 types of risks.
a) Insurable risks- Risks which the insurance company will pay for part of the damage.
b) Non-insurable risks- No insurance company will bear such costs.

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