Factors of production

1. FACTORS OF PRODUCTION
BSC AGRI 2
PAE
UNIT 2

2. Factors of production
• Resources used for production
• Types:
– Land
– Capital
– Labour
– Entreprenuership

3. Land
• Natural resources
• Characteristics
– A gift of nature
– Limited in supply
– Land is immovable
– The supply of land involves no opportunity cost

4. Capital
• Man-made resources used for further
production
• Examples: machines, raw materials, tools
• Features:
– Man made
– It raises the productivity of other factors

5. Land or Capital?
• Ice at Mount Everest
• Ice in a skiing field
• Sea water
• Sea water in a seafood restaurant
• Sharks in the Atlantic Ocean
• Sharks at the Ocean Park

6. Human Resources
• Labour
• Entreprenuership

7. Labour Supply
• Measured in terms of time (man hour)
• Labour supply = no. of workers x no. of
working hours per worker

8. Labour Supply
• Measured in terms of time (man hour)
• Labour supply = no. of workers x no. of working
hours per worker
• Factors affecting labour supply:
– Size of population
– Size of working population
– No. of working hours

9. How to increase labour supply?
–  population growth (by natural growth or
immigration)
–  monetary rewards
–  import of labour from other countries
–  retirement age (e.g. from 60 to 70)
–  school leaving age (e.g. from 16 to 17)

10. Labour productivity
• Measured in terms of output per unit of
labour
Average labour productivity = average output per man hour
June 2005 Firm A Firm B
Number of working hours per worker 240 180
Units of output 7200 6400
Average labour productivity 30 35.6
Firm B has a higher labour productivity than firm A

11. How to raise labour productivity?
• Better education and training
• Other factors of production( quantity &
quality)
• Better management or organization. e.g.
division of labour
• Better working conditions
• Greater fringe benefits (housing
allowances,medical care,bonus, meal..)

12. Mobility of Labour
• Geographical mobility: the ease at which
labour can move from one working place to
another.
• Occupational mobility: the ease at which
labour can change from one type of job to
another

13. Factors affecting occupational mobility
• Monetary / non-monetary rewards
•  income of the present job (higher
opportunity cost in changing job) mobility

• Specialization of skills   mobility 
• Licensing requirements   mobility 
• Higher age of workers  mobility 

14. Factors affecting geographical mobility
of labour
• Transport
• Social factors
• Economic conditions ( home country/other
countries)
• Political stability
• Immigration or emigration restrictions

15. Factor returns
• Rent
• Interest
• Wage
• Profits

16. Source
• 1. Elementary economic theory - K.K. Dewett
and J.D. Verma
• 2. International Economics - B. Mishra
• 3. Fundamentals of Agricultural Economics -
A.N. Sadhu and A. Singh
• 4. Economics - Paul A. Samelson and W.D.
Nordhans (Pearson Publications)
• dept.mst.edu.hk/economics/Factors%20of%2
0production.ppt