Factors of production joint stock companies and their essential characteristics

1. Question 1:
Write a detailed note on factors of
production.
Factors of production
Factors of production means inputs and finished goods means output. Input
decides the quantity of output i.e. output depends upon input. Input is the
starting point and output is the end point of production process and such input-
output relationship is called as "Production Function".
All factors of production like land, labour, capital and entrepreneur are required
altogether at a time to produce a commodity. In economics, production means
creation or an addition of utility.
 Four Factors of Production in Economics:

2. 1.Land is a Natural & Primary
Factor of Production
Land is not created by mankind but it is a gift of nature. So, it is called as
natural factor of production. It is also called as original or primary factor of
production. Normally, land means surface of earth. But in economics, land has a
wider meaning.
From the above picture it is clear that land includes earth's surface and resources
above and below the surface of the earth. It includes following natural
resources:-
i. On the surface (e.g. soil, agricultural land, etc.)
ii. Below the surface (e.g. mineral resources, rocks, ground water, etc.)
iii. Above the surface (e.g. climate, rain, space monitoring, etc.)

3.  Peculiarities / Characteristics / Features of Land
1. Land is a free gift of nature
Land is a free gift of nature to mankind. It is not a man-made factor but is a
natural factor.
2. Land is a primary factor of production
Though all factors are required for production, land puts foundation for
production process. Starting point of production process is an acquisition of
land. So, it is a primary factor.
3. Land has perfectly inelastic supply
From society's point of view, supply of land is perfectly inelastic i.e. fixed in
quantity. Neither it can be increased nor decreased. Simply, you cannot change
size of the earth. But from individual point of view, its supply is relatively
elastic.
4. Land has grad ability
Land varies from region to region on the basis of fertility. Some land are more
fertile and some are not at all. So, fertility wise, grading of land is possible. So,
in this way, land has grad ability.
5. Land is a passive factor
Land itself doesn't produce anything alone. It is a passive factor. It needs help of
Labour, Capital, Entrepreneur, etc. Like labour and entrepreneur, it doesn't work
on its own initiative. So it is a passive factor.

4. 6. Land may have diminishing returns
Here, return means quantity of crops. By using fertility of land with the help of
capital and labour continuously, returns gets diminished because of reduction in
fertility.
7. Land has a derived demand
Demand for agricultural goods is a direct demand and for producing such
goods, land is indirectly demanded. So, as a factor, land has a derived demand
from consumer's point of view.
8. Land has no social cost
Land is a gift of nature to society. It is already in existence. Land is no created
by society by putting any efforts and paying any price. So, for society, supply
price of land is zero.
But, because for the purchase of land or for its improvement, individual has to
pay certain price, so its supply price for individual is not zero.
9. Land is a indestructible factor
Land is durable and not perishable. It has a long life. No one can destroy the
land. The power of land is permanent and indestructible. Its fertility can be
destroyed as well as restored by human efforts.
10. Land is perfectly immobile
Mobility means ability to move. Movement of land from one place to another is
impossible. Thus, physically, land is perfectly immobile. But it has certain
occupational mobility because it can be used for variety of occupations, like
agricultural use or for construction of houses.

5. 11. Land has a site or location value
Every piece of land has its certain site or location value. Such value depends
upon quality of its location. Land near to sources of raw materials and other
infrastructure facilities always enjoy high site value. Here accessibility of land
plays an important role.
12. Land earns rent as a reward for its use
Rent is a reward for the use of land. Classical economists like Ricardo
connected rent with fertility of land whereas modern economists like Marshall
and Jevons stated that land earns rent because of its scarcity.
2.What is Labour and Labourer?
Meaning
Usually, the term 'Labour' is used for 'worker'. But, technically, it is not correct. Labour and
Labourer (worker) are two different things.

6. Labour is an ability to work. Labour is a broad concept because it includes both physical and
mental labour (as per above picture). Labour is a primary or human factor of production. It
indicates human resource.
Labourer is a person who owns labour. So labourer means worker. It is a person engaged in
some work
 Peculiarities / Features / Characteristics of Labour
1. Labour is inseparable from labourer
Labour cannot be separated from labourer. Worker sells their service and
doesn't sell themselves.
2. Labour is a perishable factor
Labour cannot be stored. Once the labour is lost, it cannot be made up.
Unemployed workers cannot store their labour for future employment.
3. Cost of producing a labour cannot be determined
It is easy to calculate production cost of a commodity produced in an industry.
But cost of producing a labour is a vague concept because it includes expenses
incurred by parents on education of their children and other expenses incurred
on them right from their birth date. It is impossible to estimate all such casts
accurately.
4. Labour is an active factor of production
Other factors like land, capital are passive, but labour is an active factor of
production. Being a human being, this factor has its own feelings, likes and
dislikes, thinking power, etc. We can achieve better quality and level of
production, if land and capital are employed properly in close association with
Labour. So without labour, we cannot imagine the smooth conduct of
production.

7. 5. Labour is a heterogeneous factor
No two persons possess the same quality of labour. Skills and efficiency differs
from person to person. So, some workers are more efficient than others in the
same job.
6. Labour has imperfect mobility
Labour doesn't move easily from one occupation to another because of several
factors like family and cultural background, limited educational and technical
skills, lifestyle, housing and transport problems, language barrier, adaptability
to new environments, etc.
7. Labour supply is inelastic in general
Supply of labour depends upon many factors like size of population, age and
sex composition, desire to work, quality of education, attitude towards work,
etc. Thus, supply cannot be changed easily according to changes in demand.
Hence, in general, labour supply is inelastic. But for a particular industry, it may
be relatively elastic.
8. Labour is a human capital
Society makes investment in labour in the forms of education, health, training,
etc. This improves efficiency of labour. So, it is a human capital.
9. Trade unionism is a factor of Labour
Workers collectively form their organization which is known as trade union.
With this, they bargain with their employers and there by secure higher wages
and better working conditions. Such trade unionism is not possible in other
factors of production like land, else works only in case of labour (labourer).

8. 10. Labour has a derived demand
Like other factors of production, labour has a derived / indirect demand. It
contributes to production process.
11. Labour is a Mean as well as an End
Labour is a mean of production in factory. But outside the factory premises
worker may be a consumer of that product. So, he might be an end user of that
commodity.
3.What is Capital? Meaning
Different subjects like Book-keeping, organization of commerce (O.C) and
secretarial practice (S.P) in commerce, economics, etc., indicate different
meaning of the term Capital.
In book-keeping, capital means amount invested by businessman in the
business.
In commerce subjects like O.C and S.P, capital means finance or company's
capital.
But, in economics, capital is that part of wealth which is used for production.
But here consider meaning of term capital from economic point of view

9.  Relations of Capital
The word Capital is related with the following three terms, viz..
1. Wealth,
2. Money, and
3. Income.
The relation of capital with wealth, money and income is explained below:-
1. Relation with Wealth:-
Capital is that part of wealth which is used for production. So, wealth is a broad
concept and capital is a narrowed concept..
If a commodity is having features like scarcity, utility, externality and
transferability, it becomes wealth. A motor car has all above features, so it is a
wealth.
When wealth is used in production process, it becomes capital. Therefore, any
commodity as a wealth becomes the capital if it is used for production.
Thus, all capital is wealth but all wealth is not capital.
2. Relation with Money:-

10. Normally, capital means investment of money in business. But in economics
money becomes capital only when it is used to purchase real capital goods like
plant, machinery, etc. When money is used to purchase capital goods, it
becomes Money Capital.
But money in the hands of consumers to buy consumer goods or money hoarded
doesn't constitute capital. Money by itself is not a factor of production, but
when it acquires stock of real capital goods, it becomes a factor of production.
For production we need real capital and money capital but money capital
acquires real capital.
3. Relation with Income:-
Capital generates income. So, capital is a source and income is a result. E.g.
refrigerator is a capital for an ice-cream parlour owner. But, profits which he
gets out of his business is his income.
So, Capital is a FUND concept and Income is a FLOW concept.
 Features of Capital

11.  Types of Capital
4.What is Entrepreneur?
Meaning
The term 'Entrepreneur' has been derived from a French word 'Entreprendre' meaning to
undertake certain activities.

12. Factors of production viz. land, labour and capital are scattered at different
places. All these factors have to be assembled together. This work is done by
enterprise through entrepreneur. This is an 'Organization Function'.
Organization function is the work of bringing the required factors together and
making them work harmoniously.
Entrepreneur has to bear risks and uncertainties. For facing uncertainties he may
get profit or may incur loss. This is the 'Risk Bearing Function' and entrepreneur
is the risk bearer.
 Qualities / Skills of an Entrepreneur
To be a successful and ideal entrepreneur, one should have certain qualities
or skills as given
1. Ability to organize
2. Professional approach
3. Risk bearer
4. Innovative
5. Decision Making.
6. Negotiation skills etc.

13. Question 2:
Write the essential characteristics of
a joint stock company.
A Joint Stock Company is a voluntary association of persons to carry on the
business. It is an association of persons who contribute money which is called
capital for some common purpose. These persons are members of the company.
The proportion of capital to which each member is entitled is his share and
every member holding such share is called shareholders and the capital of the
company is known as share capital. The Companies Act 1956 defines a joint
stock company as an artificial person created by law, having separate legal
entity from its owner with perpetual succession and a common seal.
Shareholders of Joint Stock Company have limited liability i.e. liability limited
by guarantee or shares. Shares of such company are easily transferable.

14.  Characteristics of Joint Stock Company:
The analysis of above definitions reveals the following characteristics of a company:
1. Association of persons:
A company is a voluntary association of persons established for profit motive. A
private company must have at least two persons and the public limited company
must have at least seven persons to get it registered. The maximum number of
persons required for the registration in case of private company is fifty and in
case of public company there is no maximum limit.
2. Artificial person:
A company is an artificial person. It is created by law. Like that of the natural
person, it can own property, incur debts, file suits, and enter into contracts with
others under its own name. It can be sued and fined but cannot be imprisoned.
3. Separate legal entity:
A company being created under law has a separate entity from its members. Any
of its members can enter into contracts with others. A member cannot bind a
company by his acts or dealings with the third parties. The company can file a
suit against its members and its shareholders can also sue the company. Further,
a shareholder is not liable for the acts of the company even though he may be
holding all the shares of that company.
4. Limited liability:
The liability of the members or shareholders is limited to the extent of the value
of shares held or the amount guaranteed by them. The shareholders are not
personally liable for the debts of a company beyond that limit.
5. Transferability of shares:
The shares of a public limited company are freely transferable and can be
purchased and sold through the stock exchanges. A shareholder of a public
limited company can transfer his shares without the consent of other shareholders.
But there are certain restrictions on transferability of shares in case of private
limited company.

15. 6. Common seal:
Since a company is an artificial person, it cannot put its signature on any
document. Therefore, it is statutory for every company to have a seal on which
the name of the company is engraved. Affixing of seal on any document signifies
the signature of the company. Of course two directors have to sign as witnesses
in such cases.
7. Separation of ownership from management:
The shareholders are the owners of the company. They are heterogeneous group
of people who are widely scattered throughout the country and abroad. The
shareholders elect their representatives called directors to manage the company.
Thus, the company is managed by directors rather than the shareholders. This
results in separation of ownership from management.
8. Perpetual succession:
The company enjoys a continuous existence. Its existence is not affected by death,
lunacy or insolvency of its shareholders or directors as the case in partnership or
sole proprietorship. The company can only be dissolved by the operation of law.
9. Investment facilities:
A joint stock company raises its funds through issue of shares to general public.
Due to the small denomination of the shares, the company provides investment
opportunities to all sections of people who want to put their surplus money in the
company's share.
10. Accountability:
A joint stock company has to function as per the provisions of the Companies
Act. The accounts are to be audited by qualified auditors. Such accounts and
exports are published for the information of all stakeholders. Regular and timely
reports are to be submitted to the Government.
11. Restricted action:
A company cannot go beyond the powers mentioned in the abject clause of the
Memorandum of Association. Therefore, its action is limited.