Way to economics 01
Analyses determinants of factor productivity with the
identification of the characteristics of factors of production
The resources of land, labour, capital and entrepreneur used in production
are called production resources.
Land and capital can be classified as property resources and labour and
entrepreneurship can be classified as human resources.
Natural resources gifted from nature which can be used productivity in
production are called land. All resources such as forests, minerals, ocean,
rivers, wild animals and air located above or below the earth are included
under land.
The Following are the characteristics of land.
1. Being a gift of nature
2. Supply being inelastic
3. Immobility
4. Possibility to improve productivity
5. Non uniformity (Location, climate, minerals, aquatic resources)
6. Payment for land being rent.
Mental and physical efforts used to produce goods and services are called
labour.
Characteristics of labour are as follows.
1. Being a live factor
2. Mobility
3. Heterogeneity
4. Possibility to improve productivity through education and
training
5. Possibility of decision making and organization
6. Payment for labour being wages
Factor affecting the size of the labour force.
1. Size of population and age structure
2. Health of population
3. Level of education and skills of the population
Man made aids used in the process of the production of goods and
services are called capital.
Special characteristics of capital are,
1. Being a man made factor
2. Being a real factor
3. Being a stock factor
4. Consists of productivity
5. Possibility to use in production again and again
6. Possibility to depreciate
7. Benefit of capital being interest
Variability of capital and its use is determined by the technology of each
country
Various forms of capital are as follows.
1. Fixed capital/real capital/physical capital
2. Circulating capital
3. Economic overhead capital
4. Social overhead capital
5. Human capital
6. Natural capital
7. Social capital
Durable capital used in the production process continuously such as
factories, machinery and stores are called fixed capital.
Throughout the period where fixed capital is used the resource owner will
receive a flow of benefits.
Stock of raw materials used in the production process, stock of semifinished goods stock of goods being produced, stocks ready for sale and
finished goods are identified as circulating capital.
This type of capital important in continuing production process without
any barrier and for preparing future production plans.
Capital goods which facilitate production of goods and services and the
distribution process of an economy are called economic overhead capital.
Also called as economic infrastructure.
Examples: Ports, air ports, high ways
Economic infrastructure affects encourage domestic and foreign private
investments. Due to this, today. The governments of most countries
provide this type of capital.
Capital goods which help produce services to fulfill basic human needs
are called social overhead capital. Buildings in the education sector,
hospitals in the health sector, operation theatres, medical research centers
and equipment and also drainage lines come under social overhead
capital. These improve social welfare.
Skills of labour consists of education, training, research, experiences and
favourable health which help to improve the productivity of labourers and
professionals are called human capital.
Through human capital, productivity of labour can be improved and both
quality and quantity of production can be increased.
University lecturers, trained teachers and consultants are the examples for
improved labour of human capital
Natural resources such as land, streams, air, water and eco systems which
facilitate production are called natural capital. Commonness of natural
capital would be an important factor for economic growth.
Institutions which improve social interrelations quantitatively and
qualitatively, traditions, membership of clubs and social networks are
called social capital. Today social capital is a major concern of research
and development institutions.
In economics money does not consider as capital.
Capital stock of a country is generated through investment. Investments
arise with savings. Therefore, there is a relationship among capital,
investment and savings.
Savings of an economy exist in various forms. It can be classified as
domestic savings, foreign savings, business firms’ savings and public
savings.
The proportion of house hold income not used for daily consumption is
considered as savings.
Part of firms’ profits is kept in firms as retained profits. It is called
business savings and it will be used for future investment.
The balance obtained by deducting current expenditure from total
government revenue is identified as public savings.
Combining all factors of production within an economy, organizing of
production activities, operation and policy making while bearing risks is
called entrepreneurship.
Functions performed by an entrepreneur are as follows.
1. Mobilizing factors of production engaged in policy decision
making.
2. Organization of production activities
3. Introduction of innovations
4. Risk bearing
Characteristics of an entrepreneur are,
1. Being a human factor
2. Being a generating force
3. Successfully facing challenges
4. Leadership quality
5. Future vision
6. Belief in self
7. Room for training
8. Creativity
9. Identifying of opportunities
10. Positive thinking
11. Flexibility
There are differences between a manager and an entrepreneur. A manager
is the person who implements decisions made by an entrepreneur.
Although the benefit gained by an entrepreneur is considered as profit
earnings of a manager is considered as wages. An entrepreneur faces
uninsured risks while a manager does not face such risks.
Countries like Australia and New Zealand have lot of land resources.
Therefore mainly they use land in their production.
Countries like China and India use mainly labour in their production as
these countries have world’s largest population.
Countries like the United States of America and Japan use capital mainly
in their production as these countries are rich with capital.
Although there is less of land, labour and capital Singapore has achieved
a high level of development with having the factor of entrepreneurship.
Average output obtained by a unit of an input is called productivity.
Factor productivity is estimated as
Factor productivity = Total output
Total input
Determinants of factor productivity are
Technology
Human capital
Management
Division of labour and specialization
