Economics Report on Factors of Production

1. Assignment
Topic:
Factors of Production
Group Members:
Isma Khalid BS-IAS-31-R-F18
Asad Khalil BS-IAS-44-R-F18
Maha Sarfraz BS-IAS-41-R-F18
Iqra Ashfaq BS-IAS-38-R-F18
Hamda Shahid BS-IAS-48-R-F18
Hafsa Noor BS-IAS-7-R-F18
Aniqa Butt BS-IAS-27-R-F18
Submitted to:
Mam Noor Tariq

2. Isma Khalid
Roll No. 31
 Introduction to Factors of Production:
The basic and lifelong interest of human being is to satisfy maximum number of their wants by
consuming more and more of goods and services. But goods caninot be available ,unless they are
produced. So, production of goods and services is the first requirement in the process of
satisfying our wants. Any activity which has to satisfy material wants is called production.
 Production:
In ordinary use, the word production means creation of goods. But according to economics,
Production refers to all the activities undertaken to provide goods and services for
satisfying human wants for which people are willing to pay a price.
 History of Production:

3. Production takes place in two forms:
(a)Production of goods
(b)Supply of services
 Production of goods:
Nature has provided mankind with huge amount of earth’s resources. Some of these can be
directly consumed like spring water and air . But most of these require human efforts to change
them into a form, which can better satisfy our needs and wants. This human effort or activity is
called Production.
“Production of goods means to work on some material thing in such a way that it becomes more
useful and its value increased.”
 Ways of increasing production:
There are three ways for creating or increasing the value of something and producing goods and
services:
1)Change in form of material:
Making a chair out of wood, bread out of wheat , ice cream out of milk and sugar , cement out of
stone, glass out of sand , growing of wheat from seed are all productive activities. In brief, these
activities can be called transformation of input into outputs.
2)Change of place of availability:
Transportation of goods e.g. fruits from farm to market or goods from factory to consumers .
Mobility of goods from one place to another makes them readily and conveniently available for
use.
3)Change in time of availability:
Storing and preserving of goods for use in future. Storage can increased the utility and value of
something e.g. the whole stock of wheat produced in a country is not used at the time of harvest.
It is stored to be available throughout the year. Thus, growing and preserving of wheat are both
productive activities. Moreover,
 Production of services:
It refers to those human actions, which can satisfy needs of other fellows or to perform physical
and mental work having market value. Examples of production of services are teaching, singing
for money, examining of a patient by a doctor, haircutting work of a clerk in a office, services of
police man, bus driving etc.
To see that whether some work can be counted as production or not we should see if the work
assists towards the satisfaction of material wants or generates income. Thus when a cricketer
plays cricket in a college match, it is not production since it does not generates income but when
he plays as a professional in attest cricket in a test cricket it is production because it becomes a
source for income for him. In this meaning the work of a voluntary nature or work of house wife
and a student is not included in production. A beggar goes from place to place and has to do

4. acting also. But since his work cannot be sold in the market it cannot be treated as production.
However if the same person do the same acting as a beggar in a film, his work is included in
production. The amount which he receives, is called income since he provides entertainment for
viewers who are willing to pay for his work. The people who make and sell goods or service are
known as producers.
 Importance of Production:
The ultimate aim of all economic activity is consumption of goods and services. But
consumption is possible only if goods and services . But consumption is possible only if goods
and services are produced. If the people or nations want to raise their standard of living , they
will have to produce more quantity of goods and services. A nation which patronizes idle classes
like beggars, jagirdars , so-called peers, agents and social parasites that live on other’s
production and incomes, can have little hope for economic prosperity. In the modern world, only
those nations, who produce more have respectable status. Japan is a smaller country than India
and Russia. But because its production is much greater than these countries ,it is ahead of them
and is an economic super power. If Pakistan wants economic prosperity , it will have to produce
more . Pakistan has vast natural resources. Those need to be utilized for production. For this
purpose we will have to change social and economic environment so that people willingly make
greater productive efforts and so earn more income. The ratio of non-productive elements in the
society must be reduced.
 Production Function:
The relationship between the quantity of factor inputs and the quantity of resulting
output is called production function.
Production function shows how the quantity of output changes as the quantity of factor inputs is
changed. In the production function, both output and inputs are measured in physical units ( like
tons, meters etc.) and not in rupees. Production of a commodity requires the combined use of
many factors . The relationship between the quantity of factor inputs and the quantity of resulting
output is called production function. The purpose of a production function is to tell us just how
much output we can produce with varying amounts of factor inputs. The following table shows a
simple production function about sewing of shirts using two inputs labor and capital.
Capital
Input
Labor Input

5. In functional notation ,we can write a general production function as,
Q=f ( L, K)
 Short Run Production Function:
A short-run production function refers to that period of time, in which the installation of new
plant and machinery to increase the production level is not possible.
 Long Run Production Function:
Long-run production function is one in which the firm has got sufficient time to install new
machinery or capital equipment, instead of increasing the labor units.

6. Asad Khalid
Roll No. 44
LAND
The term ‘land’ generally refers to the surface of the earth. But in economics, it includes
all that, which is available free of cost from ‘nature’ as a gift to human beings. Land stands for
all nature, living and non-living which are used by man in production.
Even though land is passive factor and it does not possess any ability to produce on its
own, it is an important agent of production. Modern economists consider land as a specific factor
of production, which can be put, not only to a specific purpose but to several other uses
Land has been defined by various scholars, as:
“By land is meant not merely land in the strict sense of the word, but whole of the
materials and forces which nature gives freely for man’s aid in land, water, in air and light and
heat.”
—PROF. MARSHALL
“Land is a specific factor or that it is the specific element in a factor or again that it is the specific
aspect of a thing.” —PROF. f. K. MEHTA
Thus, we can say, land includes:
 Surface of the earth like plains, plateaus, mountains, etc.
 Sea, rivers, ponds, etc.
 Air, light, etc.
 Oil, coal, natural gas, etc.
 Silver, gold and other metals and minerals.
Characteristics of Land:
‘Land’ has specific characteristics, which distinguish it from other factors of production.
The main characteristics of land are:
1. Free Gift of Nature:
Basically, land is available free of cost from the nature. In the initial stages, man paid no
price for the land acquired by him. However, to improve the usefulness or fertility of land or to
make some improvements over land, some expenditure is to be incurred, but as such, it is
available at no cost from nature. Man has to make efforts in order to acquire other factors of
production.
But to acquire land no human efforts are needed. Land is not the outcome of human
labor. Rather, it existed even long before the evolution of man.

7. 2. Supply of Land is Fixed:
Supply of land is fixed in quantity. It means supply of land cannot be increased or
decreased like other factors of production. Although for an individual, supply of land may be
flexible, but at macro level, the overall supply of land is fixed. However, only effective supply of
land can be increased by making an intensive use of land.
3. Difference in Fertility:
All lands are not equally fertile. Different patches of land have different degrees of
fertility. Some locations are very fertile and have very good agricultural productivity, whereas
some patches are totally barren and nothing can be grown there. Similarly, the degree of richness
of mineral wealth varies from place to place, making the land more useful or less useful from
economic point of view.
4. Indestructibility of Land:
Land is an indestructible factor of production. Man can change only the shape of a
particular location and composition of its elements, but as such land cannot be destroyed. It can
either be converted into a garden or to a forest or to an artificial lake. However, some parts of
land get eroded due to natural factors, but that is immaterial because overall availability of land
does not change.
5. Immobility:
Unlike other factors, land is not physically mobile. It is an immobile factor of production,
as it cannot be shifted from one place to another. It lacks geographical mobility. Some
economists, however, describe land as a mobile factor on the argument that it can be put to
several uses.
6. Land is a Primary Factor of Production:
In any kind of production process, we have to start with land. For example, in industries
it helps to provide raw materials, and in agriculture, crops are produced on land.
7. Passive Factor of Production:
Land is a passive factor of production, because it cannot produce anything on its own.
Human element and capital inputs are required to be combined in an appropriate manner with
land in order to obtain yields from it.
8. Effect of Laws of Returns:
Since land is a fixed factor of production, the laws of returns are more effectively
applicable on it. Increased use of capital and labor on a particular plot of land leads to an
increase in crop production at a diminishing rate.
9. Alternative Uses of Land:
Land is used for alternative purposes like cultivation, dairy or poultry farms, sheep
rearing, building, etc. The use of land for any particular purpose depends not only on the return
from that particular use, but also the returns from alternative uses.

8. 10. Land is Heterogeneous:
Land like other factors of production differs from another in respect of location, fertility,
nature and productivity. Two pieces of land are not exactly the same.
Functions of Land:
The primary occupations are agriculture, dairying, animal husbandry and poultry
farming. These essential activities are not possible without land. Manufacturing industries
depend totally on land for raw materials. Land provides minerals, metals and many raw materials
like cotton, jute and sugarcane which are used to create other essential products.
1. Primary Occupation:
All primary occupations like agriculture, animal husbandry, poultry farming, fisheries,
dairying, forestry, etc. are land oriented and are also known as primary activities.
2. Basis of Industries:
Manufacturing industries get diverse type of raw materials from land, namely, raw
cotton, sugarcane, raw jute, coal, minerals and metals, etc.
3. Basis of Power:
All sources of power, i.e. hydro-electricity, thermal power, diesel, coal, oil, etc., emanate
from land.
4. Basis of Employment:
In underdeveloped countries nearly two-third of population is engaged in agriculture and
other primary activities. Agriculture, forests, mines, etc., provide lot of employment
opportunities to rising population.
5. Basis of Transport:
All the important modes of transport, i.e., road, railways, waterways and air-ways are
mainly based on surface of the land, rivers, oceans and air, which are all constituents of land.
6. Basis of Trade:
Products of land are traded within the country and also form part of foreign trade.
Products like food grains, minerals, metals, timber, leather, hides and skins, wool, tea, jute,
petroleum, milk, butter, etc., are tradable products of land.
7. Basis of Economic Growth:
A natural resource, that is land, play an important role in the economic development of a
country. Prosperity of gulf countries lies in the oil-wells found there. Economic development of
South Africa is mainly due to its fertile land, irrigation and power facilities. All these are
different facets of land.
8. Basis of Life:

9. We depend on land for our subsistence, residence and other necessities of life. Land
provides food, raw materials and shelter.
Importance of Land:
Land is considered the primary factor of production. Land is rich in coal, water and
petroleum, which are used for generating power. Land is required to construct factories and
industries to carry out the production process. Land is of great importance to mankind. A
nation’s economic wealth is directly related to the richness of its natural resources.
In spite of rich natural resources, a country may remain economically backward due to
some unfavorable factors on account of which the natural sources are either underutilized or not
utilized. On the other hand, if a country does not have rich natural resources, it is comparatively
much more difficult to make it prosperous.
The quality and the quantity of agricultural wealth of a country depend on the type of
soil, climate, rainfall and water resources. The industrial progress and prosperity of a nation
depends on mineral resources. The presence of rich coal mines, waterfalls or petroleum wells
directly help in the generation of electric power, which is a key factor for industrial development.
The localization of industries invariably depends on proximity of power and raw
materials. All these basic elements are provided by nature.
An example can emphasize the importance of land. In recent past, in spite of having
enough capital, labor and efficient organization, TATA Motors were unable to start their Nano
car project at Singur, West Bengal, due to the dispute over land possession.
In short, the importance of land is evident from the following points:
 Land determines agricultural production.
 The industrial progress and prosperity of a country depends on availability of mineral
resources, i.e., land.
 Land determines total production of a country.
 Land influences the economic growth of a country.
 Land maintains ecological balance.
 Land directly or indirectly fulfills the basic needs of the people.
 Trade is influenced by land.
Therefore, all economic aspects, i.e., agriculture, industry and trade are influenced by natural
resources, referred by economists as ‘Land’.
Productivity of Land:
Productivity of land refers to extent of efficiency. The productivity of land can be
expressed by following measures:
1. Average Productivity of Land:
Average productivity of land is defined as the output obtained from land divided by area
of that piece of land.

10. 2. Marginal Productivity of Land:
Marginal productivity means the increase in output obtained from land due to increase in
one unit of land, but the other inputs are kept constant.
Factors Affecting Productivity of Land:
The factors affecting the productivity of land are discussed below:
1. Fertility of Land:
The productivity of land is determined by its natural qualities and its fertility. A flat and
leveled land is comparatively more productive than an undulating one. The rich soil is more
fertile and productive. However, the agricultural productivity can be improved by proper and
extensive use of manure and fertilizers along with adoption of mechanized methods.
2. Proper Use of Land:
The productivity of ‘land’ is directly related to its proper utilization. For example, a piece
of land situated in the heart of city is more suitable for construction of a house or a market place.
If this piece of land is put for farming or agricultural use, its productivity will almost be
negligible.
3. Location of Land:
The location of ‘land’ affects its productivity to a great extent. For example, the location
of land near the market or bus station will result in economy of transportation charges and
overall productivity from this point of view will naturally be higher. Similarly, for better
agricultural productivity, its location near water resources is desirable.
4. Improvements done on Land by Increasing Irrigation Potential:
Permanent improvements done on land by generating artificial means of irrigation, i.e.,
wells, tube wells, canals, tank, etc., help to keep the water supply regular and have a positive
effect on the productivity of land.
5. Ability of Organizer:
Land is a passive factor of production and so it is essential to combine it with other active
factors, in correct proportion, to achieve the optimum productivity. In order to accomplish it, an
able organizer is a must, who can successfully handle and combine the passive and the active
factors in right proportion so as to achieve greater productivity. The competence and ability of an
organizer directly affect the productivity of land.
6. Land Ownership Laws:
The ‘land ownership laws’ prevailing in a country have a significant influence on the
productivity of land’. When a full ownership is conferred, the owner takes more interest in its
development. For example, a cultivator possessing full ownership rights on land does more hard
work and the productivity automatically improves.

11. But poor farmers work as tenants on the lands of large farmers. Insecurity of tenancy
rights may cause eviction of poor tenancy farmers which make them uninterested to improve
land productivity.
7. Availability of Efficient Labor:
The productivity of land depends on the availability of efficient labor as land alone
cannot produce anything without the efficient labor. If the labor is efficient, trained and capable
to adopt modern techniques; only then he can make the proper use of land.
8. Improved Techniques of Production:
New inventions, modern and scientific methods of production like using high yielding
varieties of seeds, manure, etc., have increased the productivity of land. Uses of modern
machines in mining have also increased the production of various minerals in India.
9. Availability of Capital:
Capital is the fundamental factor that affects the productivity of land. The productivity of
land can be maximized with the help of improved seeds, chemical fertilizers and machines. To
fulfill all these requirements, sufficient capital should be available.
10. Government Policy:
The productivity of land is affected by the government policy regarding agriculture.
Agricultural productivity starts increasing when the government adopts a proper agricultural
policy and provides required assistance to farmers. On the other hand, the state’s negligence
towards agriculture is regarded as one of the main causes of agricultural backwardness. This
results in low agricultural productivity.

12. Maha Sarfraz
Roll No. 41
Labor
 What Is Labor?
Labor refers to the human effort that goes into the production of goods and services with the aim
of receiving a reward. This effort includes both physical and mental exertion. It is performed to
receive income in the form of wages. A person who plays golf for recreational purposes also do
mental and physical work but does not earn income. So it is not regarded as labor.
Most jobs in the modern economy involve both mental and physical labor. Writing a business
proposal involves both physical and mental effort. The mental effort is using your brain to come
up with new and creative ideas, while the physical effort is typing the proposal.
 Characteristics of labor:
a) The ownership of labor does not belong to the firm, but to the person selling the labor service.
Ownership can’t be separated from the person selling the service. When a firm buys labor, it
doesn’t buy or own the person itself (this would be slavery), but only the services that the person
provides. A firm can’t sell labor, or transfer ownership of labor to someone else, as in the case of
capital, where a firm owns a machine.
b) Usually laborer’s need to be physically present when their services are used. This means that
non-monetary factors, such as the geographic location of the work; working conditions, such as
hours of work, leave, health and safety issues; and job satisfaction are important. Machines, on
the other hand, do not complain about working conditions.
c) Labor can’t be stored or hoarded for use in the future. Labor lost due to strikes or inefficiency
is lost forever
d) The geographical and occupational mobility of labor is relatively low. Some factors that
influence geographical mobility are the financial cost of moving, the availability of schools and
healthcare, family ties and so on. Factors such as the lack of qualifications, retraining and the
difference in working conditions associated with different jobs influence occupational mobility
e) Labor is heterogeneous, which means that it has many different characteristics. This is because
people differ in terms of attitude, abilities, personalities, physical attributes and productivity.
This makes labor a complex factor of production to manage
f) The use of labor by a firm is a bargaining process between the firm (employer) and the worker
(employee). Neither the firm nor the worker can determine conditions of work on the spur of the
moment or without following any formal structure
g) It isn’t possible to increase the supply of labor on short notice. This is because the quantity of
labor available depends on factors such as population growth, cultural factors, and education and
training. These factors take a long time to change.
 Importance of Labor:
Production cannot take place unless labor is part of it. Both the quantity of labor and the quality
of labor are important for the production of goods and services to take place.
 Quantity of labor:
Quantity of labor the greater the quantity of labor available in a country, the greater the potential
output that can be produced. It is currently estimated that between 400 000 and 500 000 new
people enter the South African labor market every year.
There are mainly three factors that determine the quantity (or supply) of labor available in a
country: l the population growth rate (the birth rate minus the death rate) l the labor force
participation rate l migration.

13. i) The population growth rate. If the birth rate exceeds the death rate, the size of the
population increases. Since there are more people, there is more labor. The effect of
an increase in the population growth rate is only felt when children reach working
age.
ii) The labor force participation rate. This is another factor that determines the size of
the labor force. Not all people of working age are part of the labor supply or the
economically active population. Some choose not to work and some are not able to
work.
iii) Migration. The difference between immigration and emigration is another factor that
influences the supply of labor. Workers who move from one country to another
immediately add to the labor force of the destination country.
b) Quality of labor:
Even more important than the quantity of labor is the quality of labor. The quality of labor refers
to the skills, knowledge and health of workers. The quality of labor is often referred to as human
capital.
I. Increased education is one way in which the quality of labor can be improved. It can be
of a formal nature, where students obtain diplomas, certificates and degrees, or it can be
informal through on-the-job training, or learning-by-doing.
II. Skills development is currently a key strategy.
III. Quality of labor can be increased by motivation
IV. It also depends upon the personal traits like intelligence.
V. A resourceful persons acquire better heath ad mental facilities than a poor worried
person
VI. Good relations of employers with workers can increase labor.
Remuneration of labor:
In return for providing firms with labor services, the owners of these labor services receive
remuneration in the form of wages and salaries, royalties, commissions, management and
consultancy fees, bonuses and fringe benefits (housing, medical aid, pension contributions, etc.).
In a market system, the underlying forces that determine the level of wages, and the difference in
wages, are linked to the forces of demand and supply. The demand for labor is based on the
demand for goods and services that will be produced with labor. The remuneration of labor will
depend on two things, namely, the demand for the goods and services produced by labor, and
how valuable the person is to the firm.
a) The higher the demand for a good or service, the higher will be the demand will be for the
labor needed to produce the goods or service, and the higher the wage that will be paid.
b) The more valuable a person is to a firm, the more willing and able the firm will be to pay a
higher wage. How valuable a person is to a firm will also depend on his or her productivity and
skills. Therefore, wages differ because the services of some people are regarded as more valuable
than the services of other people. The market also reflects which levels of skills are scarce and
which are in abundant supply. If a skill is regarded as scarce, the market will offer a higher
reward. This is to ensure that people will be willing to invest in gaining the skills. This will then
increase the supply of this skill to the market. If a skill is in abundant supply, the market will
decrease the rewards for these skills and people will rather try to gain other more useful skills to
offer the market.

14. c) Wage differentials also occur because jobs are different. Different jobs require different levels
of education, skills, training and experience. The higher these requirements are, the higher the
wage is. Some jobs are dangerous and hazardous, while others are more pleasant. A wage
differential is usually paid to compensate people for doing more hazardous jobs.
e) Wage differences are also caused by geographical and occupational immobility. Workers do
not easily move from one location to another location and from one kind of job to another job.
f) There is also evidence to show that the larger the firm is and the more unionized it is, the
higher the wage will be compared to smaller firms and less unionized firms.
 Demand and supply of labor:
Although labor has certain peculiarities and cannot be regarded as a commodity, still wages are
very largely determined by the interaction of the forces of demand and supply.
 Labor force:
Total size of working population of a country along with their productive abilities is called labor
force. It is estimated that by excluding children a old age people and other dependent people
from the total population. A country prosperity or the national income depend upon strength,
efficiency, an employment rate of labor force
Labor force is determined by three point of view:
I. Labor force-population ratio
II. Rate of employment of labor force
III. Efficiency with respect to age, skills and region
1. The labor force
This indicates that how much part of the country I working and percentage is dependent upon
others. Pakistan participation rate is 33% which is very low.
2. Pakistan total labor force:
Pakistan total labor force estimated for the year 2018 is 63 million.
The distribution is shown below
Sector Labor employed
Agriculture 43
Manufacturing 14
Transport 6
Construction 7
Trade and commerce 15
Finance and services 15
Total 100
3. Labor force is a heterogeneous group of people. In Pakistan we find that there are highly
skilled and trained people and o the other side there are illiterate and unskilled population
which limits the productive potential of labor force.
 Demand for Labor:
The demand for labor is a derived demand. It is derived from demand for the commodities it
helps to produce. The greater the consumers’ demand for the product, the greater the producers’
demand for the labor required in making it. Hence an expected increase in the demand for a
commodity will increase the demand for the type of labor that produces this commodity.
The elasticity of demand for labor depends, therefore, on the elasticity of demand for its output.
Demand for labor will generally be inelastic if their wages form only a small proportion of the

15. total wages. The demand, on the other hand, will be elastic if the demand for the commodity it
produces is elastic or if cheaper substitutes are available.
The demand for labor also depends on the prices of the co-operating factors. Suppose the
machines are costly, as is the case in India, obviously more labor will be employed. The demand
for labor will increase. Another factor that influences the demand for labor is the technical
progress. In some cases, labor and machinery are used in a definite ratio. For instance, the
introduction of automatic looms reduces the demand for labor.
After considering all relevant factors, e.g., demand for the products, technical conditions, and the
prices of the co-operating factors, the wages are governed by one fundamental factor, viz., and
marginal productivity. Just as there is a demand price of commodities, so there is a demand price
for labor.
The demand for labor, under typical circumstances of a modern community, comes from the
employer who employs labor and other factors of production for making profits out of his
business. The demand price of labor, therefore, is the wage that an employer is willing to pay for
that particular kind of labor.
Suppose an entrepreneur employs workers one by one. After a point, the law of diminishing
marginal returns will come into operation. Every additional worker employed will add to the
total net production at a decreasing rate. The employer will naturally stop employing additional
workers at the point at which the cost of employing a worker just equals the addition made by
him to the value of the total net product.
Thus, the wages that he will pay to such a worker (the marginal unit of labor) will be equal to the
value of this additional product or marginal productivity. But since all the workers may be
assumed to be of the same grade, what is paid to the marginal worker will be paid to all the
workers employed. This is all about the demand side of labor. Now let us consider the supply
side.
 Supply of Labor:
By the supply of labor, we mean the various numbers of workers of a given type of labor which
would offer themselves for employment at various wage rates.
The supply of labor may be considered from two view-points?
(a) Supply of labor to the industry and
(b) Supply of labor to the entire economy.
For an industry, the supply of labor is elastic. Hence, if a given industry wants more labor, it can
attract it from other industries by offering a higher wage. The supply of labor for the industry is
subject to the law of supply, i.e., low wage, small supply and high wage, large supply. Hence, the
supply curve of labor for an industry rises upwards from left to right. The supply of labor for the
entire economy depends on economic, social and political factors or institutional factors, e.g.,
attitude of women towards work, working age, school and college leaving age and possibilities
of part-time employment for students, size and composition of the population and sex
distribution, attitude to marriage, the size of the family, birth control, standard of medical
facilities and sanitation, etc.
 Backward Sloping Supply Curve of Labor:
While labor’s supply curve sloping upwards from left to right is the general rule, an exceptional
case of labor’s supply curve may also be indicated (see Fig. 31.1) When the workers’ standard of
living is low, they may be able to satisfy their wants with a small income and when they have
made that much, they may prefer leisure to work. That is why it happens that, sometimes,

16. increase in wages leads to a contraction of the supply of labor. This is represented by a
backward-sloping supply curve as under.
For some time this particular individual is prepared to work long hours as the wage goes up
(wage is represented on OY—axis in Fig. 31.1). But beyond OW wage, he will reduce rather
than increase his working hours.
However, this backward sloping Curve may sometimes be true of certain workers, the supply
curve of labor to industry as a whole will normally slope upwards from left to right.
 Mobility of labor:
Mobility of labor refers to the ability or capacity of a laborer to change over to new job ,new
position or shift to a new place of work without much difficulty
Mobility of factors is of five types:
Geographical mobility:
Geographical mobility means the movement of a worker from one place to another in search for
better wages.
Occupational mobility:
It refers to the changing of profession by a worker to enjoy higher income.
Horizontal mobility:
It means moving from one job to another of the same status or salary.
Vertical mobility:

17. Through promotion or through shifting from a junior position to a senior position.
Social mobility:
It means the movement from one social class to another e.g.: a factory worker becomes a
business man.
Factors increasing mobility:
Large numbers of factors affect mobility the major factors are:
Wage differences:
People tend to move from low paid to high paid jobs. The greater is the difference in the two jobs
the more attraction will be there for new job.
Condition for work:
People prefer to shift to those occupations and jobs where the conditions of work are favorable.
Ambition:
If the worker has strong urge to make progress and improve his standard of living he readily
shifts to a new job where prospects are brighter.
Peace and security:
Mobility of labor will be greater in a country where there is peace and security.
Means of transport:
It plays an important role in the mobility of labor. People don’t hesitate to go to distant places if
they can contact their families.
Information about job opportunities:
Labor mobility increase if the information about job opportunities is easily available.
Obstacles in mobility:
The following are the obstacles in mobility;
Love for relatives, home sickness and social ties:
Due to strong family bond an employee may refuse to promotion which require shifting to a new
place.
Different social customs:
Different family system and pattern of social life discourages people to go to new places.
Language barrier:
It is difficult to move to a new job if it requires to learn a new language. This difficulty is more
for people who are above middle age.
Inadequate transport facilities:
Workers avoid shifting to areas where they cannot communicate with relatives.
Government restrictions:
Sometimes government rules does not allow a person to move to a new job or a place.
Illiteracy and ignorance:
Due to ignorance people miss chances of good jobs
Health:
Poor health is always an obstacle in workers mobility.

18. Hamda Shahid
Roll no. 48
CAPITAL RESOURCES
 Meaning of Capital
Capital is that part of wealth which can be utilized for supplementary production of wealth.
As per Marshall,
“Capital consists of all kinds of wealth, other than free gifts of nature, which yield income.”
Therefore every type of wealth other than which assists in additional production of income is
called capital. The house in which a man resides is his wealth and the house which is given on
rent is his capital.
Let us see various types of factors which are different from the terminology ‘capital’.
 Capital and Money – All money is not capital. Money consists of currency notes and
coins which are escalated or minted by the government. But capital comprises of all those
wealth such as machines, tools, and buildings etc. which are termed as capital
commodities. Hence, all money is not said to be capital and only those part which is
engrossed in production of more income is called capital.
 Capital and Wealth – There is dissimilarity amidst capital and wealth. Hence all capital
is wealth but all wealth is not capital. Furniture used in the home is wealth but if these are
leased then it becomes capital.
 Capital and Land – Similar to land, capital is also a vital aspect in production but there
is diversity amidst capital and land. Capital is produced by human being. He makes it
with certain hard work. Man cannot create lan. Land is immovable, while capital is
mobile for the reason that its supply can be changed at ease.
 Capital and income – There is substantial difference amidst capital and income. Capital
is that portion of wealth which is utilized for additional production of income. Thus
income is the result of the use of capital. So capital is a stock, whereas the income is a
flow produced from capital.
CharacteristicsofCapital
Capital has its own peculiarities which distinguish it from other factors of production. It
possess following features.
 Man produces Capital – Capital is that wealth which is used in the manufacture of
commodities. It is the outcome of human efforts. Thus every type of capital such as
roads, machines buildings, factories etc., is produced by human. It is a produced factor of
production.
 Capital is a passive factor of production – Capital cannot produce without the help of
the active services of labor. To produce with machines, labor is required. Thus labor is an
active whereas capital is a passive factor of production.

19.  Capital is a produced means of production – The composition or supply of capital is
not automatic but it is produced with the joint efforts of labor and land. Therefore capital
is a produced means of production.
 Capital is variable – The total supply of land cannot be changed whereas the supply of
capital can be increased or decreased. If the residents of a country produce more or save
more from their income and these savings are invested in factories or capital goods it
increases the supply of capital.
 Capital Depreciates – As we go on using capital, the value of capital goes on
depreciating. When machines are used continuously for some time, these depreciate and
their value falls.
 Capital is stored up labor – Scholars like Marx confess that capital is stored up labor.
By putting in his labor man earns wealth. A part of his wealth is spent on consumption
goods and the rest of it is saved. When savings is invested it becomes capital. In other
words, capital is the effect of accretion of savings of a man. Hence, capital is stored up
labor.
Forms of capital
There are various forms of capital
 Financial Capital
This is the one that we are all familiar with, the means by which pretty much all humans today
exchange goods and services. The materialist machinations of the capitalist market are driven
principally by this form of the capital, to the detriment of all others.
 Material Capital
Beyond money, it is easy for us to conceptualize physical goods and objects that we own as
being their own sort of capital. These assets begin as raw materials extracted from the Earth and
are developed into more complex forms such as houses, cars, consumer goods, etc.
 Living (Natural) Capital
This form of capital is closely related to material capital, but involves both the living organisms
upon which we depend and necessities of life which sustain us: plants, animals, water, air, soil,
and the like. The currency of living capital is the diversity, abundance, and quality of these
resources.
 Social Capital
A person who is wealthy in social capital might be described as “well connected” or
“highly influential.” She is in good standing with the people around her and trades in gifts
and favors. Friends often feel “indebted” to her for the support that she provides.
Interpersonal connections are the currency of this form of capital.

20.  Intellectual Capital
This is the knowledge that you possess, acquire, and exchange with others. Roland points
out that this form of capital is what drives our global education system, for better or worse.
We are taught that intellectual capital is the primary factor for success in the world, which
means that it should be readily exchanged for financial capital; anyone struggling to make
ends meet after college might argue otherwise.
 Spiritual Capital
Your understanding of yourself and your place in the universe can be measured in terms of
spiritual capital. Most equate “spirit” with religion, but this need not be the case – when you’re
out in the woods soaking up all the good vibes, you’re accumulating spiritual capital.
 Cultural Capital
Unlike all previous forms of capital, which are held and exchanged by individuals, cultural
capital can only function on the community level. Think of it as “zooming out” on social capital
and observing the bigger picture of interactions between people. The currency of cultural capital
is things like art, music, stories, history, and holidays.
Functions of Capital:
The following are its main functions:
 Supply of Raw Materials:
Capital supplies raw materials. Every businessman must have on hand a sufficient supply of raw-
materials of a good quality. A cotton mill must have cotton ready in its godown; a paper mill
must keep straw or bamboo cuttings; a sugar mill must buy large quantities of sugarcane, and so
on. This is undoubtedly very essential, otherwise how is production to go on?
 Supply of Appliances and Machinery:
Another equally necessary function that capital performs is the supply of tools, implements and
appliances. It is clear that these things are essential for production Tools are needed even in the
most primitive stage of economic development.
 Provision of Subsistence:
Capital provides subsistence to the laborers while they are engaged in production. They must
have food, clothes and lodging. Production today is a long-drawn-out affair, and has to pass
through many stages. It may be after years that the goods reach the market and bring income to
the manufacturer. Means must be found in the meantime to bridge this gap, and this is the
function which capital performs. It provides means of subsistence for the workers when they are
engaged in the work of production.

21.  Provision of Means of Transport:
Goods have not only to be produced, they have also to be transported to the markets and put into
customers’ hands. For this purpose, means of transport, like railways and motor-trucks, are
essential. A part of the capital must be devoted to the supply of this need.
 Provision of Employment:
In modern times, capital is performing another very important function, viz., to provide
employment. This function is of special importance to under-developed or developing
economies. Among the determinants of employment in a country, probably the most important is
the saving and its investment in the form of capital.
Importance of Capital:
Capital plays a vital role in the modem productive system. Production without capital is bard for
us even to imagine. Nature cannot furnish goods and materials to man unless he has the tools and
machines. Because of its strategic role in raising productivity, Capital occupies a central position
in the process of economic development. In fact, capital formation is the very core of economic
development.
Another important economic role of capital formation is the creation of employment
opportunities in the country. Capital formation creates employment at two stages. First, when the
capital is produced-some workers have to be employed to make capital goods like machinery,
factories, dams, irrigation works, etc. Secondly, more men have to be employed when capital has
to be used for producing further goods.
Productivity of capital:
Productivity of capital refers to the ratio between quantity of output and the amount of capital
used
Capital has two general forms;
Physical or real capital for instance machinery, equipment, tools, office and factory
Money capital (bonds and stock certificates)
The following factors affect productivity of physical capital
 Combination of factors
Capital cannot work without labor. To get maximum output, capital asset should be combined in
right proportion with labor. For a given quantity of capital, if we use too much or too little labor,
its productivity may fall

22.  Quantity of labor
Productivity of capital depends upon human efficiency. A machine can be productive if operative
by more efficient labor. Education, training, skill and motivation of workers play key role to
determine how much output can be obtain from a piece of capital
 Proper use of capital
Physical capital is more productive if it is used for the propose for which it was made. A truck
will be more productive if it is used for carry goods than for carrying passengers.
 Use of complementary goods and equipment
Some capital goods require complementary goods to work. Productivity of bus will be higher if
run in a good quality road.
 Quality of raw material
High quality raw goods increase the productivity of capital. The efficiency of a capital will be
greater if a good quality paper is used in it.
 Better technology
Improved technology can bring more output per unit of capital
 Researchfor adaptation to local conditions
Through research, if capital goods like machinery is adopted to local conditions, efficiency of
capital will improve
 Maintenance and repair facilities
Keep the productivity of a capital asset intact
 Management and supervision
The efficiency of managers and administrators of firms has direct effect on the productivity of
capital, which is used under their supervision. Experience, motivated and careful managers will
use capital more efficiently and get higher returns.

23. Iqra Ashfaq
Roll no . 38
Meaning of Capital Formation:
Capital formation means increasing the stock of real capital in a country. In other words, capital
formation involves making of more capital goods such as machines, tools, factories, transport
equipment, materials, electricity, etc., which are all used for future production of goods. For
making additions to the stock of Capital, saving and investment are essential.
ProcessofCapital Formation:
In order to accumulate capital goods some current consumption has to be sacrificed. The greater
the extent to which the people are willing to abstain from present consumption, the greater the
extent that society will devote resources to new capital formation. If society consumes all that it
produces and saves nothing, future productive capacity of the economy will fall as the present
capital equipment wears out.
In other words, if whole of the current productive activity is used to produce consumer goods
and no new capital goods are made, production of consumer goods in the future will greatly
decline. To cut down some of the present consumption and wait for more consumption in the
future require far-sightedness on the part of the people.
There is an old Chinese proverb,
“He who cannot see beyond the dawn will have much good wine to drink at noon, much green
wine to cure his headache at dark, and only rain water to drink for the rest of his days”
Three Stages in Capital Formation:
a) Creation of Savings:
An increase in the volume of real savings so that resources, that would have been devoted to the
production of consumption goods, should be released for purposes of capital formation. Capital
formation depends on savings. Saving is that part of national income which is not spent on
consumption goods. Thus, if national income remains unchanged more saving implies less
consumption. In other words, in order to save more and more people have to curtail their
consumption voluntarily. If people reduce their consumption savings will increase. If
consumption falls some resources used in the production of consumption goods will be released.
(b) Mobilization of Savings:
The next step in the process of capital formation is that the savings of the households must be
mobilized and transferred to businessmen or entrepreneurs who require them for investment. In
the capital market, funds are supplied by the individual investors (who may buy securities or
shares issued by companies), banks, investment trusts, insurance companies, finance
corporations, governments, etc.

24. (c) Investment of Savings:
The act of investment itself so that resources are actually used for the production of capital
goods. For savings to result in capital formation, they must be invested. In order that the
investment of savings should take place, there must be a good number of honest and dynamic
entrepreneurs in the country who are able to take risks and bear uncertainty of production
Importance of Capital Formation:
Capital plays a vital role in the modern productive system. Production without capital is hard for
us even to imagine. Nature cannot furnish goods and materials to man unless he has the tools and
machinery for mining, farming, forestry, fishing, etc.
If man had to work with his hands on barren soil, productivity would be very low indeed. Even
in the primitive stage, man used some tools and implements to assist him in the work of
production. Primitive man made use of elementary tools like bow and arrow for hunting and
fishing net for catching fishes.
Role of information technologyin capital formation:
With the growth of technology and specialization, capital has become more complex and is of
superior and advanced type. More goods can be produced with the aid of capital. In fact, greater
productivity of the developed economies like that of USA is mainly due to the extensive use of
capital, i. e. machinery, tools or implements in the productive process. Capital adds greatly to the
productivity of worker and hence of the economy as a whole.
Much economic development is not possible without making and using of industrial machinery,
making of agricultural tools and implements, building of dams, bridges, factories, roads,
railways, airports, ships, ports, harbors, etc., which are all capital. All these capital goods are
man-made instruments of production and increase the productive capacity of the economy.
Therefore, accumulation of capital goods every year greatly increases the national product or
income. Capital accumulation is necessary to provide people with tools and implements of
production. If the population goes on increasing and no net capital accumulation takes place,
then the growing population would not be able to get necessary tools, instruments, machines and
other means of production with the result that their capacity to produce would be seriously
affected
According to Prof. Ellis
"The shortage of capital accumulation is the main obstacle in the way of economic
development."
Sources ofCapital Formation and Importance:
Capital came into existence as a result of saving.it requires three steps :
 Act of saving
People must cut current condition to have saving

25.  Mobilization of saving
Utilization of savings through banks and credit institutions
 Investment of saving
Idle savings become hoarding and nonproductive. Banks play the role of middle man in putting
savers money in the hand of investors and make it productive.
The stock of capital goods can be built up and increased through two main sources:
(1) Domestic Resources
(2) External Resources
(1) Domestic Resources:
 Voluntary Savings
There are two main sources of voluntary savings (a) households (b) business sector. As regards
the volume of personal savings of the households. It depends upon various factors such as the
income per capita, distribution of wealth, availability of banking facilities, value system of the so
 Involuntary Savings
In the developing countries, the income per capita of the people is low. Their propensity to
consume mainly due to demonstration effect is very high. As the flow of savings is inadequate to
meet the capital needs of the country, the government, therefore adopts measures which restrict
consumption and increase the volume of savings.
 Individual saving
It can be increased by providing fair return to the savers and by establishing banks in urban and
rural areas.
 Public saving
It can be increased by campaigns, increased taxation and by borrowing. Tax is a compulsory
saving out of people income
 Deficit financing
It is a convenient method used by modern government for capital formation. Deficit financing
means printing of money and supply of money.
(2) External Resources:
External resources are of following types:
(i) Foreign economic assistance
There is a controversy over the impact of inflow of capital of development of country. It is
argued that capital is one of the variables in the growth process. If the government of the country

26. is ineffective and people are not receptive to social changes, the inflow of capital resources and
technical assistance would go waste.
In case, the developing nations needing foreign capital and technical assistance have the will to
absorb
Capital and technical knowledge and the social and political barriers are overcome, capital then
becomes the touchstone of economic development. The main benefits of the foreign economic
assistance, however, in brief are as under:
(a)Foreign loans bridge saving gap.
In Pakistan, like most of the developing countries, the domestic saving average 14% of GDP.
The low rate of saving is not sufficient to achieve the desired rate of growth in the country.
Foreign loans supplement domestic savings and help in bridging the resource gap between the
desired investment and the domestic savings.
(b) Close the trade gap.
In Pakistan, the export earnings are persistently falling short of import requirements. The foreign,
exchange gap caused by excess of import/export is being filled up with inflow of capital.
(c) Provides greater employment opportunities.
The financing of various projects with the help of foreign assistance provides greater
employment opportunities in a country.
(d) Increase in productivity of various economic sectors.
The inflow of capital and technical know-how increases the productive capital of various sectors
of the economy.
(e) Increase in real wages.
The foreign resources help in increasing marginal productivity of labor in the recipient country.
The real wages of the workers are thus increased with the help of foreign assistance.
(f) Provision of higher products.
The foreign capital helps in the establishment of industries in the country. The inflow of
technical knowledge improves the quantity and quality of manufactured goods and makes them
available at lower prices to the domestic consumers.
(g) Increase in tax revenue.
The profits earned on foreign investment are taxes by the government; the revenue of the state is
thus increased.
(h) External economies.
The inflow of foreign capital and advanced technology stimulates domestic enterprises. The firm
avails of the benefits of external economies like that of training of labor, introduction of new
technology, new machinery, etc.

27. (ii) Donor Country and the Economic Assistance:
Here a question can be asked as to why the developed nations are kind in giving aid to the
developing countries? According to the rich nations, the foreign aid is given for a combination of
humanitarian and self-interest reasons:
(a) Humanitarian ground: If a country is faced with famine, drought, epidemic, diseases,
earthquake etc., it is obligatory for the developed nations to help that country financially purely
on humanitarian grounds. The rich countries are extending economic assistance in the form of
grants to the poor nations of the world.
(b) Self-interest reasons.
Foreign economic assistance is also provided on the following self-interest reasons by the donor
countries.
(a) The foreign aid may be given to protect the developing country from the influence of-other
camp countries.
(b) The donor country may have surplus products. In order to check the fall in the prices of
products in the domestic market and to maintain level of production, the surplus goods are
exported to the needy countries on loan.
(c) Economic assistance is also provided by the. Donor countries to remove the economic
disparities among the nations of the world.
(d) Some advanced nations particularly the socialist countries provide financial and technical
help for the propagation of political ideology in the capitalist developing countries.
(e) Foreign aid is also given for increasing the camp followers of the donor countries.

28. Aniqa Butt
Roll no. 27
Entrepreneurship
Comes from a French word `Entrependre’ and the German word `Uternehmen’ both meaning
individuals who are `undertakers’ i.e. those who took the risk of a new enterprise.
Entrepreneurship is a dynamic activity which helps the entrepreneur to bring changes in the
process of production, innovation in production, new usage of materials, creator of market etc. It
is a metal attitude to foresee risk and uncertainty and do something new in an effective manner to
achieve certain goals. An entrepreneur is an economic change agent with knowledge, skills,
initiative, drive and spirit of innovation to achieve goals. He identifies and seizes opportunity for
economic benefits. He is a risk bearer, an organizer and an innovator.
 According to Economists
An entrepreneur is the one who brings resources, labor, material and other assets into
combination to produce a socially viable product, and also one who introduces changes,
innovation and new order.
 According to Management
A person with a vision and action plan to achieve it is an entrepreneur.
Functions of an entrepreneur
 Identification of opportunities
 Introduction of a new product
 Gathering resources or Introducing new methods of production
 Developing new markets
 Characteristics of an Entrepreneur
 Vision
He is able to visualize market demand, socio-economic environment and the future of business
venture.
 Knowledge
He has sound conceptual knowledge about all the technicalities of his business.
 Desire to succeed
He has multiple goals and a seeks opportunities to be productive.
 Independence
He is independent in work and decision making
 Optimism
He knows how to exploit opportunities.

29.  Value addition
He does not follow the conventional rule of thumb, they have a desire to create, innovate and add
value.
 Initiative
He takes the initiative to make an action plan from limited resources.
 Goal setting
He sets realistic goals.
 Problem solver
He is creative in problem solving.
 Good human relations
He is a good leader, motivator and team builder.
 Communication skills
He has the ability to persuade others.
 Ability to take Risks
This is the first and foremost trait of an entrepreneurship. Starting any business involves a
considerable amount of risk of failure. Therefore, the courage and capacity to take the said risk are
essential for an entrepreneur.
 Leadership
An entrepreneur has a vision. However, it takes a lot of resources to turn that vision into reality. One
of these resources are the people that the entrepreneur hires to perform various functions like
production, supplying, accounting, etc.
A single person cannot perform all the tasks and therefore it is important to bring some more people
to do it. This also makes leadership very important as a leader provides the required direction to the
efforts of the employees. Without proper leadership, everyone would be working independently
without achieving the desired results.
 Confident and Well Informed
An entrepreneur needs to be confident about his ideas and skills. This confidence also inspires the
confidence of the people working for him as well as the other stakeholders involved in his business.
This confidence comes from being well informed about the industry and environment. Various legal
and political policies enhance business and trade opportunities, while some hinder them. Having a

30. knowledge about these can really help an entrepreneur make the right decision at the right time.
Types of Entrepreneur
(i) According to Clarence Banhof
 Aggressive/Innovative entrepreneur
The one who uses various combinations of information and factors of production to assemble
and engineer new and innovative products.
 Immitative /Adoptive entrepreneur
The one who simply adopts a successful innovation introduced by other entrepreneurs.
 Fabian entrepreneur
The one who is timid and cautious in making bold decisions. Such an entrepreneur adopts
innovations in his business only when he fears that not innovating may damage his business.
 rone entrepreneur
A drone entrepreneur is one who refuses to adopt new innovations even at the cost of reduced
returns.
(ii) According to Authur H. Cole
 Empirical entrepreneur
An entrepreneur who does not innovate and follows the rule of thumb.
 Rationalentrepreneur
An rational entrepreneur is one who keeps himself updated with his business, the market and
economic conditions, and introduces revolutionary ideas.
 Cognitive entrepreneur
An entrepreneur that seeks advice and services of experts to make changes which are
revolutionary and reflect a complete shift from its existing structure.
(iii) According to Ownership
 Public entrepreneurship
These are individuals who partner with the government to create enterprises which serve the
public in innovative ways.
 Private entrepreneurship
 These entrepreneurs are profit oriented and do not enter market which have low
monetary rewards associated with it.
(iv) According to Scale ofenterprise

31.  Large scale entrepreneur
Large scale entrepreneurs are usually found in developed countries. These entrepreneurs
introduce revolutionary ideas and are able to sustain high profits and develop new technologies
as they possess the financial capacity and necessary resources to do so.
 Small scale entrepreneur
Small scale entrepreneurs do not have the necessary funds and technology to initiate large scale
production and introduce revolutionary ideas.
Nature of Entrepreneurship
 Creationof an enterprise
It involves creation and operation of an enterprise.
 Organizing function
It brings together various factors of production for economic use.
 Innovation
It is an automatic, spontaneous and creative response to changes in the environment.
 Risk bearing capacity
It assumes uncertainty of future.
 Managerialand leadershipfunction
It is responsible for controlling and coordinating the human resource and giving direction to an
enterprise.
 Gap filling
It fills the gap between human needs and available products and services.

32. Hafsa Noor
Roll No. 7
Entrepreneurship
5.ProcessofEntrepreneurship:

33. (A) Identify an opportunity – An Entrepreneur senses opportunities and visualizes a market
since they are creative and open to new ideas and seek challenges. They look for needs, wants,
problems and challenges that are not met or dealt effectively. Since their ideas are innovative they
gain first movers advantage which provides product identification and higher credibility in the
market.
(B) Establishing a vision – It involves generation of ideas using past experience and creativity to
develop new and innovative ways to solve a problem, or satisfy a need. Out of many ideas the
most feasible and profitable are chosen and narrowed to one best idea. He evaluates different
opportunities and the business environment to assess the
i. Real and Perceived value of the product/service
ii. Risks and rewards associated with the project
iii. and differential advantage in its competitive environment.
(C) Persuade others – He forms a foundation team which consists of a group of individuals who
work together to turn his vision into reality. They may be partners, financiers, family members etc.
(D) Gathering Resources – It involves using a business plan to attract investors, venture
capitalists, partners, financial institutions, promoters etc. The main task is to research and identify
resources that are needed to turn the idea into a viable venture.
 Resources can be categorized into –
• Financial Resources – Personal savings, retained capital, banks, government institutions,
family, friends, partnerships, venture capital, public issue.
• Operating Resources – They can be Tangible or Intangible.
 Tangible – (a) machines (b) raw materials (c) land and building (d) office equipment (An
entrepreneur has to make a decision to buy, rent or hire them).
 Intangible resources – (a) company’s image (b) operating procedures (c) transportation
(d) management
• Human – Temporary/permanent employees, Amount of man power needed, Recruitment,
Selection and Training of staff, Compensation, Organization culture.
• Information – An efficient management information system is needed in order to have timely
info about customers, markets, competitors and external environment. All the data is networked
on real time basis to speed up actions based on information.
(E) Create new Venture – When all the resources have been arranged, the next step is Creation
and establishment of a new venture and running the business venture successfully. It requires a lot
of enthusiasm and persuasion to gather optimum resources and it requires a lot of perseverance
and passion to believe in self.

34. (F) Change/Adapt with time – It is necessary to monitor and upgrade the organization with
changing market conditions. It requires availability of funds to make changes and the adaptability
of human resource towards changed environment.
6.Functions of Entrepreneurship →
(A) Primary Functions –
 Planning
 Organizing
 Decision Making
 Managing
 Innovating
 Risk bearing
(B) Secondary Functions –
 Diversification of production
 Expansion of the enterprise
 Maintaining cordial employer and employee relations
 Tackling Labour problem
 Coordinating and communicating with third parties
(C) Other Functions –
 Managing of scarce resources
 Dealing with public bureaucracy
 Identifying parallel opportunities
 Building Strong customer relations
7.Barriers to Entrepreneurship →
(i) Environmental Barriers →
(a) Raw Material – Non-availability of raw materials required for production during peak
seasons. It leads to increase in price of raw materials due to competition.
(b) Labor –
 Lack of skilled labor
 Lack of committed and loyal employee
 Quality and Quantity of labor

35. (c) Machinery – Machines are necessary but they are also costly and due to rapid change in
technology they become obsolete and require replacement which requires cash in hand. It becomes
very difficult for small business organization to keep updating its production process.
(d) Land and Building – Acquisition of land and construction of building at a prime location
require heavy expenditure. If the land is taken on rent, it becomes a fixed cost and a constant
concern for the entrepreneur.
(e) Infrastructure support – Adequacy of power, proper roads, water and drainage facilities
etc. There is less support from development authorities due to corruption.
(ii) Financial barrier → Availability of funds is a major concern. A delay in source of finance
results in delay of starting or running business.
(iii) Personal Barrier → They are caused by emotional blocks of an individual. They cause a
mental obstruction. They are: -
(a) Lack of confidence – They think they will never find a successful business idea and would be
unable to attract necessary resources. Therefore, they dismiss the thought of being self-employed.
(b) Lack of Dependability on others – They aim to gain their additional expertise through trial and
error and experience, rather than seeking further development or personal assistance from others.
(c) Lack of Motivation – Lose interest and motivation when ideas don’t work.
(d) Lack of Patience – When desire to achieve success in first attempt or to become rich instantly
are confronted with business challenges/problems they lose interest. They give up at during initial
losses.
(e) Inability to Dream – Sometimes they are short of vision or satisfied with what they have
achieved and lose interest in further expansion of business.
(f) Sense of Pride/Embarrassment – they are too proud or too embarrassed to take help.
(iv) Societal Barrier →
 Socio-cultural norms and values
 Degree of approval or disapproval of entrepreneurial behavior
 Financial stability and family background
 Caste and religious affiliation
(v) Political Barrier →
 Government incentives and concessions
 Facilitating socio-economic setting
 interest in economic development of society

36. 8.Scope of Entrepreneurship →
Individuals are opting for entrepreneurship as a career due to reasons such as –
 Desire of control over one’s future
 More profits
 Lack of employment opportunity
 Government measures to promote entrepreneurship
Entrepreneurship provides employment and source of earning to people. It helps in reducing the
monopoly of rich businessman and achieving a balanced regional development and growth in
economy. Government is conducting development programs to identify entrepreneurial potential
and assistance from financial and non-financial institutions are being provided to entrepreneur.
Entrepreneurship training institutes have been established and financial and operational support is
being provided to young entrepreneurs in Pakistan.

37. Reference:
https://bbamantra.com/introduction-to-entrepreneurship/
http://www.economicsdiscussion.net/demand/demand-and-supply-of-labour-explained-with-
diagram/1755
https://www.slideshare.net/nightseem/capital-formation-17804445
http://www.economicsdiscussion.net/articles/capital-formation-meaning-process-and-other-
details/1543
http://www.yourarticlelibrary.com/economics/capital-formation-meaning-and-process-of-capital-
formation-economics/10821
http://www.economicsconcepts.com/capital_formation.htm
https://www.tutorsonnet.com/characteristics-and-meaning-of-capital-formation-homework-
help.php
https://faculty.georgetown.edu/irvinem/theory/Bourdieu-Forms-of-Capital.pdf
http://www.economicsdiscussion.net/articles/capital-meaning-characteristics-function-and-
importance-of-capital/1541
https://economicskey.com/importance-capital-8153