economics unit 4

Factors of production

Resources used in the production process

Types of resources

• Human Resources: entrepreneurship and labor

• Man made: capital

• Natural: land

Labor

Physical and mental human effort used in production

• purchase the service of the labor

• Labor force: people of working age who are willing, ready and able to work

• Factor income: wage

Total supply of labor

Number of hours of work effort provided by workers

Factors affecting labor supply

• size of population

• proportion of population that works

• number of working hours

Average labor productivity

output per unit of labor input

unit divided by man-hour

Factors affecting labor productivity

• Education and training of workers: equipped with methods, skills and knowledge

• Quantity and quality of factors of production: more and better machines and tools

• Methods of organizing labor (management efficiency): workers are well-organised, wider scope of division of labor

• Working conditions: improved working environment → higher work incentive

• Health conditions of workers: better health conditions → concentrate better

Entrepreneurship role, factor income and

• Role of bearing business risk (uncertainties of return) and make major production decisions (what, how and for whom to produce)

• Factor income: profit

• Entrepreneur: owns and manages businesses

Capital

• Man made resources to assist production

• Raise productivity of others factors of production

• Capital can be increased by human efforts

• Factor income: interest

Land

• Natural resources used in production

• Gift of nature and cant be increased by human efforts but can be increased by natural forces