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Factors of Production | O Level Economics 2281 & IGCSE Economics 0455 | Detailed Free Notes To Score An A Star (A*)

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Factors of Production

  • Factors of production are economic resources used in production
    • Land – all natural resources like animals in forest, natural gas etc
      • It includes the physical land and the natural resources that are present in the land
        • The resources that have not been affected by human activity.
        • For example, the animals in the forests and the crude oil under the land.
      • Land generates rent
      • Land is geographically immobile generally
        • It means the same land can not be used in a different location
        • However, it can be geographically mobile in some cases
          • River changing its course
          • Deposition
          • Erosion
      • Land is occupationally mobile generally
        • The same land that once used for agriculture can later be used for offices.

§Land

  • Grow in some cases with time for example land reclamation of increase of land due to deposition in deltas
  • Land can reduce with time due to erosion, deforestation, mining and over fishing etc. (NATURAL RESOURCES remember)

o Labor – all human mental and physical efforts

  • Labor can increase or decrease with time
    • See reasons in video
  • Reward of labor is wages (NOT SALARY)
    • Wages is the formal term
      • It is paid on a weekly basis
        • Piece rate – per product made
        • Time rate – per hour worked
    • Salary is calculated yearly and then divided per month
  • Labor is both geographically and occupationally mobile based on certain factors
    • Number of skills learned
    • The ability to use a certain skill in different occupations
    • Information availability
    • The ease of movement
    • Family ties and other restrictions

Capital – Machinery and equipment etc. for production – any human made good that is used in production

  • Capital good
    • That is not for the personal satisfaction of the owner, but instead to produce goods and services
      • For example, using car as taxi
    • Consumer good
      • For personal satisfaction of the owner
      • Using car for personal or family use
    • The type of the product isn’t relevant when determining if it is capital or consumer good
      • The use of the product matters instead.
    • Mobile factor
      • Geographically mobile: same van for delivery of books used in different areas
      • Occupationally mobile : same van used to deliver books, now used as ice cream van
    • Reward is interest
  • Enterprise – the decision making and risk taking skills of people or organization that bring together all factors of production to provide a solution (product) to customers.
    • Enterprise is not the person or institution themselves
      • Instead, it is the decision making and risk taking ability of the person or institution
      • The person or institution is called entrepreneur
      • Entrepreneurship is the process of being an entrepreneur
    • Most mobile factor
      • Decision making and risk taking skill in one area can be used in another area
      • Decision making and risk taking skill in one industry can be used in another industry
    • Reward is profit
  • Quality and quantity
    • Increase in capital is called positive net investment
    • Decrease in capital is called depreciation
    • Land can increase by more natural resources growing or discovery of new resources
    • Land can deplete by over time with over use, exhaustion or natural disasters
    • Labor can increase with education, immigration and new skill learning or change in the retirement age etc.
    • Smaller retirement age, people entering jobs later, emigration or skill issue can reduce labor.
    • Enterprise can increase with government support for businesses and policy improvements, the same in reverse can reduce enterprising.
Hunain Zia

Hunain Zia has previously achieved considerable success in the high-school educational stream, gaining a massive 154 Total A Grades and 7 Major Distinctions, a process in which he broke/ set 11 different world records, including the most A grades ever achieved, most subjects ever appeared in, most distinctions, gaining distinctions across two separate boards (Pearson Edexcel and CAIE) within the same year/ ever, and even 19 hours of constant examination. All records stand intact today. Hunain pursued his Honors Accounting Degree from the prestigious Bentley University, and then completed an LLB (in Honors) from University of London. Currently, he manages multiple social and commercial projects, has founded digital streams and works tirelessly in the education sector.

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