class 10 icse

1. Factors of
production
By karthik

2. Introduction
○ The productive mechanism
- The productive mechanism is the system which determines the production of
various goods
○ Production is the process of creating various goods and services which are
consumed by the people of a country
○ Things used in the production process are called factors of production
○ Production also means the creation of utility as shown below

3. Types of Utility
1. Form utility: One way of creating a utility is by changing the form of the
commodity
2. Place utility: Utility may be created by changing the location of a commodity
3. Service utility: Utility may be created by performing services. Such as the
services of doctors and lawyers
4. Time utility: Utility can be created by storing surplus of goods at 1 time and
supply them at another period of time when they are scarce

4. Characteristics of factors of production
1. Physical existence
2. Use of factor services
3. Variable factor proportions
4. All factors of production are not equally mobile
Characteristics of factors of production

5. ● Factors which are used to carry out the process of production are called
Factors of production
● Economists classified the factors into 2 categories - primary factors and
secondary factors
● Land and labour are primary factors
○ Capital is created by the application of land and labour and entrepreneur
is a person who performs and controls of business
○ Hence land and labour are primary factors of production and capital and
entrepreneur are the secondary factors of production
● Capital and entrepreneur are secondary factors
Factors of Production

6. 1. Land is limited in supply
a. Supply of land is fixed as it is a gift from nature
2. Gifts of nature
a. Land is a gift of nature and It does not have any cost of production
b. It is readily available for any use
3. Primary factor of production
a. Land is a basic factor of production because it cannot produce
anything by itself
4. Land is immobile or Permanent
a. Unlike labour and capital, Land cannot move in the process of
production
5. Passive factor of production
a. Land itself does not produce anything alone. It needs the help of
Labour, Capital, Enterprenuer etc.
Characteristics of land

7. 1. Determines agricultural production
○ The supply of land resources determines the level of agricultural production in an
economy
○ Nearly 43% of the land area of india is plain and suitable for crop cultivation
2. Maintaining proper land-man ratio
3. Supply of natural resources
○ Availability of natural resources depends on the total land area of the country
○ It helps in raising the total output of the country
4. Helping the process of industrialization and urbanization
○ Land resources in a country help the process of industrialization and urbanization
○ This gives adequate supply of land for a smooth progress
Functions of land

8. Importance of land
1. Determines the total production
○ The national output of a country depends on the land
2. Determines the agricultural output
○ The agricultural output of a country is determined by the availability of cultivable
land in a country
3. Determines the industrial production
○ The industrial output of a country depends on total area of the land
4. Influences economic growth
○ The economic growth of a country depends on the per capita output
○ The growth rate of per capita output depends on the land availability and other
resources
○ Proper use of land and resources can raise the level of national output

9. Productivity of land
1. Productivity of land meaning the capacity of a piece of land to produce a
crop
2. The average productivity of land is the output obtained from the land
divided by the area of the land
3. The marginal productivity of the land is the increase in output obtained from
the land where the land used increases by 1 unit
4. Land productivity depends on
○ Natural factors
○ Proper use of land
○ Investment of land
○ Location of land
○ Social conditions
○ Scientific method of cultivation using improved technology

10. Characteristics of labour
1. Labour(Work) cannot be separated from the labourer(Worker).
○ The Labour cannot be separated from the labourer as he will need to be present
in the workplace where the work is going on.
2. Labour is mobile
○ Labour can move from place to place and from 1 occupation to another
3. Labour has alternative characteristics
○ Any labourer can engage in different fields of work.
○ An unskilled labourer can work as a hawker and peddler
4. Labour is an active factor of production
○ Land and capital cannot produce anything without labour hence they are called
passive factors whereas labour is an active factor
5. Labour is a perishable factor
○ Labour can not be stored, once it is lost it can not be made up. Unemployed
labourer can not store their labour for future employment

11. supply of labour
1. Labour is usually measured in units of man-days per year.
2. Factors determining supply of labour
○ Population
✓ A larger population with necessary skills to perform physical or mental work
which will increase the supply of labour to the market.
○ Age structure
✓ The total population of the economy is not considered under supply of labour
✓ Supply of labour depends on the age structure of the population
✓ Child labour is prohibited by law and salaried people have to retire after a
certain age

12. Efficiency of labour
● The efficiency of labour is the productive capacity of a worker. It indicates
the ability of the worker to do more work or better work during the given
period of time
● The factors influencing the efficiency of labour
➢ A healthy and conducive work environment
✓ A healthy and conducive work environment increases the level of efficiency.
✓ The facilities available the workplace determine labour efficiency to a great
extent
➢ Literacy
✓ Literacy is a priority in improving the efficiency of labour
✓ Sufficient provisions for imparting training to workers will improve the efficiency
of labour.

13. Efficiency of labour(Contd..)
➢ Climate differences
✓ Climate differences affect the efficiency of labour in production.
✓ The hot and humid climate of most states of india is a factor which prevents
people from doing more work
➢ Willingness of workers to learn skills
✓ Willingness of workers to learn skills depends on their health and therefore on
the wage rate and standard of living
✓ Improvement in standard of living leads to an improvement in health through
better nourishment.

14. Division of labour
1. Division of labour is about dividing the production process into different
stages enables workers to focus on specific tasks.
2. Example of division of labour are: Ford Motor factories, Apple’s ‘Designed in
California and produced in China’
3. The benefits are:
➢ Increases the efficiency of labour
✓ The worker becomes more specialised if a worker is entrusted with only a
part of the work in the process of production. Thus effectively increasing
the efficiency of the worker..
➢ Rise in profits
✓ Increase in the quantity and improvement in the quality of output are
important aspects of division of labour. It brings greater profit to the
producer in the market.

15. Division of labour(Contd..)
The benefits are:
➢ Large scale of production
✓ Large scale production is feasible with the division of labour. A manufacturing
company with a reasonable number of workers can produce more through division
of labour
➢ Lower price of output
✓ Due to division of labour, reduced average costs of the products will lead to
reduced prices of the outputs in the market. Hence consumers are benefited.
➢ Raise in National Income
✓ Due to the division of labour, there is a rise in the volume of production of goods
which leads to an increase in the total value of all goods and services. The
national income also increases with an increase in the national product

16. Characteristics of capital
Capital is known as the produced means of production and is used as an input in
producing other goods.
1. Capital is durable
✓ Capital goods are durable goods which might last for a few years or many
years
2. Capital is man-made
✓ Capital is the result of savings which are made by man.
✓ It is the outcome of the past workers on natural resources
3. Supply of capital is elastic
✓ The supply of capital is elastic which can be easily increased or decreased
as it is man made.
4. Capital is a passive factor of production
✓ It cannot produce by itself and it becomes effective only when it is used by
labour

17. Sunk Capital vs Floating Capital
1. Sunk Capital is a capital used for
particular purpose and can not be
shifted from one place to another.
E.g. printing machine
1. A floating Capital is the capital
which can be used in alternative
lines of production. Examples
include raw materials, steel etc.

18. Private vs Public Capital
1. Capital which are used by private
businesses or private persons
known as private capital. E.g.
Reliance Refineries are the private
capital of Reliance Industries
1. Capital owned by the
Government or Public is known
as public capital, E.g Steel
Authority of India (SAIL)

19. Human vs Material Capital
1. Human Capital refers to person
skill, ability, training and capability
of a particular human being. For
example, Doctor, teacher, software
engineer, data scientist
1. On the other hand machines,
tools, equipment, factory, which
have definite shape and size
and can be transferred from
one place to another and have
have a material value is known
as Material capital.

20. Consumption vs Production Capital
1. All the capital which are directly
used to satisfy consumer wants
and desires known as
Consumption Capital. E.g, food,
cloth, toys, entertainment
1. Capital used for further
production, not for direct
consumption known as
production capital. E.g. seeds,
fertilizers, machines, tools etc.

21. Remuneration vs Auxiliary Capital
1. Remuneration given to labourers
for their contribution in the form of
wages known as remunerative
capital
1. On the contrary, all man made
tools, machines and
equipments are auxiliary capital
Domestic and Foreign
1. All types of private, personal and
public capitals which are found in
domestic territory or country
considered as domestic or national
capital
1. Capital owned by two or more
countries are considered as
foreign or international capital.
World Bank, Asia Development
Bank, International Monitory
Fund etc,

22. Capital formation
Capital formation refers to the stock of real assets during a particular period of
time
Three Important stages of capital formation
Creation of
Savings
- This is the first step of capital formation and it means there must be an increase
in the volume of real savings
- If an individual does not save money, then there cannot be any capital formation,
even if other conditions are favourable for capital formation
Mobilisation
of Savings
- Savings of the households must be mobilized and transferred to entrepreneurs
who require it for investment.
- For this purpose the existence of banking and other financial institutions are
must

23. Capital formation (Contd..)
Investment
of mobilised
savings
- The final stage is the investment of saving into capital goods. It needs an able
and efficient entrepreneur r to make investments for the production of capital
goods
- Money kept by the people in the banks must be lent out by the banks to the
producers for business investments such as the purchase of machinery.

24. Capital formation
Two factors determining capital formation in a country are:
1. Personal Saving:
✓ It is the difference between personal income and personal
consumption. This difference is the main source of capital formation.
✓ Nearly 75% of the Gross Domestic Savings (GDP) in India have been
contributed by the household sector
2. Corporate Saving:
✓ Only a part of the profits is retained for the purchase of capital goods
and to distribute as dividend to shareholders. The remaining part of
profits are called corporate savings.

25. Reasons for slow capital formation
Lack of ability to
save
Because of poverty, poor people are unable to save more than a
negligible part of their earning .
Hence a low rate of savings leads to a low rate of capital formation
in the Indian economy
Lack of willingness
to save
People who have the ability to save money are not willing to save
and spend all their income on day-to-day consumption
Insufficient
mobilisation of
savings
People are not mobilising their savings for capital formation.(most
of their savings are in gold or cash).
These savings are not used productively due to poor banking
knowledge and poor banking network in underdeveloped states.

26. Who is an entrepreneur and what does he do.
● An entrepreneur is a person who carries the risk of business and
coordinates the activities of all other factors of production
● Qualities of an entrepreneur
✓ Courage and ability to tackle problems
✓ Ability to make quick decisions
✓ Obtaining business knowledge
✓ Obtaining experience
✓ Efficient organiser possessing leadership qualities

27. Role of an entrepreneur
○ Understanding the risk:
‘No risk no gain’. All the entrepreneur have to bear the risk of uncertainties during production in anticipation
of future demand. Expectation of the future demand is a risk. Hence, entrepreneurs have to undergo with
all risks and uncertainties for the growth and development of the firm and as well as country.
○ Coordination of Factors of production:
The other factors of the production like Land, Capital and Labour are not capable of coordinating among
themselves during production. Hence the main role of the entrepreneur is to make the proper coordination
among these factors and reap out the benefits for the economic development of the country.
○ Innovations
An entrepreneur must be innovative, which means he/she has to give new ideas and thoughts regarding
the production. The entrepreneurs who are innovative must play a vital role for the improvement of
production. Henceforth, it enhances the economic growth of the country

28. Role of an entrepreneur (Contd..)
○ Motivation:
Entrepreneurs must have the capability to motivate other factors in the production. Specially, the worker’s
motivation is very key for the betterment production. Hence, in this context, entrepreneurs has to play vital
role in the motivation of workers during production and ultimately increase the economic growth of the
country
○ Employment Generation:
They spend a higher portion of their profits in new ventures and create more employment and income
opportunities within the country
○ Innovations
An entrepreneur must be innovative, which means he/she has to give new ideas and thoughts regarding
the production. The entrepreneurs who are innovative must play a vital role for the improvement of
production. Henceforth, it enhances the economic growth of the country
○ Healthy Competition
Healthy competition builds a stronger platform for the growth and development. Competition in all types of
market ultimately improves the quantity and quality of the production

29. Labourer vs Entrepreneur
Labour and Entrepreneurs may be associated with the same business but they
are different from each other
✓ Risk bearing and innovative capabilities are associated with
entrepreneurship whereas labour does not have any of these qualities in
any business activity
✓ Entrepreneurs receive rewards in the form of profits which may be positive,
negative or even sometimes zero. Labour receives wage rate which is
contractually fixed and positive