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PRODUCTION
Production is the act of converting raw materials into goods and services. It is done by converting the
four (4) factors of production into goods and services that can be consumed.
FACTORS OF PRODUCTION
There are Four factors of production: Land, Labour, Capital and Enterprise. Each factor has distinctive
characteristics but all are needed to carry out production of goods and services.
LAND
Land consists of all-natural resources on the earth
including those of the sea. Land therefore
comprises the geographical surface of the earth,
rivers, lakes, seas, and minerals.
“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.” –
Dr. Marshall.
Free
Gift of
Nature
Fixed
Many Quantity
uses
LAND
Permanent
Supply of land
inelastic
Primary factor
of production
LABOUR
Labour comprises the human element of the production process.
Labour is not homogenous. In other words each unit of labour is different, comprising a variety of
skills, abilities and varied expertise making its output also variable.
Labour is both geographically and occupationally mobile. Individuals supplying their labour can choose
to move to different locations for work and also change jobs if their skill and abilities allow for the
change.
CAPITAL
Capital is a good used for the production of other goods. They are man made and
homogeneous.
Capital can be mobile or imobile depending on a variety of factors such as the size and type of
the unit of capital. Some units of capital can be imported from other countries, for example, a
cultivator can be placed on a cargo ship and transported to different countries.
However , this is more difficult for an entire building or factory. The purchase of capital is an
investment.
TYPES OF CAPITAL
1. Physical capital also known as fixed capital remains fixed for a certain range of output.
These include building and factories
2. Working capital is intermediate goods and raw materials used in production.
3. Social Capital are those goods and services which help the economy to function.
Infrastructure such as roads, schools and hospitals ensure that people can get to work and
are healthy and equipped to function.
4. Human capital consists of the abilities and skills of people. It can be obtained through
education and training.
ENTERPRISE
Enterprise has two main features:
1. It combines the other three factors of production in a profitable manner
2. 2. It bears the risk of the production/business venture. If the venture is not profitable the
entrepreneur incurs the loss and is responsible for the cost of each of the factors employed.
Video – Factors of Production
https://youtu.be/iU64lU4-yZ0
FACTOR REWARDS
Each factor of production receives a reward for its contribution to the production process.
This reward is closely linked to its productivity.
In economics, the terms used for each factor rewarded is specific and as follows:
Land - Rent
Labour -Wages
Capital - Interest
Enterprise - Profit
PRODUCTIVITY
Productivity describes how well a factor converts inputs to outputs. This
can be measured by calculating the amount of output produced by each
unit of factor input.
Factor Productivity = Units of Output
Units of Factor Input
THE DIVISION OF LABOUR AND SPECIALISATION
The Division of labour is the dividing up of tasks in the production process. Each worker
may focus on one or a very few tasks instead of completing all tasks involved in the
production process.
Specialisation occurs as workers become very proficient in a few steps in the production
process. Countries can engage in specialisation also. Some countries focus on producing
mainly one or two goods and services and import the rest.
: Labour Specializationhttps://youtu.be/JhhS5jF3Ugg?si=oGUx_d6gz694Bk2G
