ECONOMICS QUESTIONS
- FACTORS OF PRODUCTION
The sum total of the economic resources which we have in order to provide for our economic wants is termed as factors of production. Traditionally economists have classified these under four headings. They are:
- Labour
- Land primary factors
- Capital
- Enterprise secondary factors
The first two are termed primary factors since they are not the result of the economic process; they are, so to speak, what we have to start with. The secondary factors, however are a consequences of an economic system.
- Land
The term land is used in the widest sense to include all the free gifts of nature; farmlands, minerals wealth such as coal mines, fishing grounds, forests, rivers and lakes.
In practise it may be very difficult to separate land from other factors of production such as capital but, theoretically, it has two unique features which distinguish it.
Firstly, it is fixed in supply. As land includes the sea in definition, then we are thus talking about the whole planet, and it is obvious that we cannot acquire more land in this sense.
Secondly, land has no cost of production. The individual who is trying to rent a piece of land may have to pay a great deal of money but it never cost society as a whole anything to produce land.
- Capital
Capital as a factor of production can be defined either as the stock of wealth existing at any one time and as such, capital consists of all the real physical assets of society. An alternative formulation of capital is that it refers to all those goods, which are used in the production of further wealth.
Capital can be divided into fixed capital, which is such things as building, roads, machinery etc and working capital or circulating capital which consists of stocks of raw materials and semi-manufactured goods. The distinction is that fixed capital continues through many rounds of production while working capital is used up in one round; For example, a classroom would be fixed capital, while stocks of chalk to be used for writing would be circulating/working capital.
As stated previously, capital is a secondary factor of production, which means that results from the economics system. Capital has been created by individuals forgoing current consumption, i.e. people have refrained from consuming all their wealth immediately and have saved resources which can then be used in the production of further wealth.
- Labour
Labour is the exercise of human, physical and mental effort directed to the production of goods and services. Included in this definition is all the labour which people undertake for reward, either in form of wages and salaries or incomes from self employment. We would not, therefore include housework or the efforts of do-it-yourself enthusiasts, even though these may be hard work.
Some aspects of labour
Labour is no doubt the most important of all factor or production, for the efficiency of any production will to a large extent depend on the efficiency and supply of the labour working in the process. Besides labour is also the end for which all production is undertaken.
Supply of labour
Supply of labour refers to the number of workers (or, more generally, the number of labour hours) available to an economy. The supply of labour will be determined by:
- Population Size
In any given economy, the population size determines the upper limit of labour supply. Clearly there cannot be more labour than there is population.
- Age Structure
The population is divided into three age groups. These are:
- The young age group usually below the age of 18, which is considered to be the minimum age of adulthood. People below this age are not in the labour supply, i.e. they are not supposed to be working or looking for work.
- The working age group, usually between 18 and 60, although the upper age limit for this group varies from country to country. In Kenya for example, for public servants, it is 55 years. It is the size of this group which determines the labour supply.
- The old age group, i.e. above 60 years are not in the labour force.
III. The Working Population
Not everybody in the working age group will be in the labour force. What is called the working population refers to the people who are in the working group, and are either working or are actively looking for work, I.e. would take up work if work was offered to them. These are sometimes called the actively active people. Hence this group excludes the sick, the aged, the disabled and (full time) housewives, as well as students. These are people who are working and are not willing or are not in a position to take up work was given to them.
- Education System
If the children are kept in school longer, then this will affect the size of the labour force of the country.
- Length of the Working Week
This determines labour supply in terms of Man-hours. Hence the fewer the holidays there are, the higher will be the labour supply. This does not, however mean that if the number of working hours in the week are reduced, productivity if there is a high degree of automation.
VI Remuneration
The preceding five factors affect the supply of labour in totality. Remuneration affects the supply of labour to a particular industry. Thus, an industry which offers higher wages than other industries will attract labour from those other industries.
VII The Extent to Barriers to Entry into a Particular Occupation
If there are strong barriers to the occupation mobility of labour into a particular occupation, e.g. special talents required or long periods of training, the supply of labour to that occupation will be limited.
Efficiency of Labour
Efficiency of labour refers to the ability to achieve a greater output in a shorter time without any falling off in the quality of the work – that is to say, increase productivity per man employed. The efficiency of a country’s labour force depends on a number of influences.
- Climate
This can be an important influence on willingness to work, for extremes of temperatures or high, humidity are not conducive to concentration even on congenial tasks.
- Education and training
Education and training produce skills and therefore efficient labour. Education has three aspects: general education, technical education and training within industry. A high standard of general education is essential for developing intelligence and providing a foundation upon which more specialized vocational training can be based. Technical training provided in the universities, colleges and by industry itself. Training within industry is given by each firm to its employees.
iii. Working Conditions
Research has shown that if working conditions are safe and hygienic, the efficiency of labour will be higher than if the conditions were unsafe or unhygienic.
- Health of the worker
The efficiency of the worker is closely related to his state of health which depends on his being adequately fed, clothed, and housed.
- Peace of Mind
Anxiety is detrimental to efficiency. People (workers) may be tempted to overwork themselves to save at the expense of health to provide for contingencies like times of sickness, unemployment and old age. Others may be worried about their work or their private problems.
- Efficiency of the Factors
The productivity of labour will be increased if the quality of the factors is high. The more fertile the land, the greater will be the output per mass, other things being equal. Similarly, the greater the amount and the better the quality of the capital employed, the greater will be the productivity of the labour.
Efficiency of the organisation is even more important since this determines whether the best use is being made of factors of production.
vii. Motivating factors
These are factors which boost the morale of the workers and hence increase the efficiency. They include such things as free or subsidised housing, free medical benefits, paid sick leave, allowing workers to buy shares in the company and incorporating workers’ representatives in the decision-making of the firm, In this way the workers feel that they are part and parcel of the organisation and are not being used.
viii. The Extent of Specialisation and Division of Labour
The greater the amount of specialisation, the greater will be the output per man, Division of labour increases the efficiency of labour.
ix The Entrepreneur
Land, capital and labour are of no economic importance unless they are organised for production. The entrepreneur is responsible not only for deciding what method of production shall be adopted but for organising the work of others. He has to make many other important decisions such as what to produce and how much to produce.
Functions of the Entrepreneur
- Uncertainty Bearing
Most production is undertaken in anticipation of demand. Firms will produce those things which they believe will yield profit. They do not know that they will do so because the future is unknown.
- Management Control
This involves responsibility for broad decisions of policy and the ability to ensure that these decisions are carried out.
FACTOR MOBILITY
Factor mobility means the ease with which a factor can be moved from one form or area of employment to another. There are two aspects to mobility. Movement from one employment to another is called occupational mobility and movement from one place of employment to
another is called geographical mobility. The geographical sense of the movement from one place to another is geographical mobility.
Mobility of Land
Land is geographically immobile in that a given piece of land cannot be moved from one place to another. However, land can be occupationally mobile in that it can be put to different uses, e.g. farming, grazing and building. Some forms of land have limited occupational mobility in that they can be put to a limited number of uses e.g. arid or desert areas and mountainous land. The former may be used as grazing land by nomadic people, unless it is found to have mineral deposits, while the latter may be used as a tourist attraction or for pleasure in mountain climbing. Immobility geographically implies that it cannot be used to increase production of a particular product unless this is done at the expense of other products.
Mobility Capital
Some forms of capital are immobile in both geographical and occupational sense e.g. heavy machinery and railway networks. Usually once such equipment has been installed on land in a particular place, it becomes uneconomical to uproot it and move it to another place. Hence, because of the heavy costs that such an operation would involve, it is for all practical purposes geographically immobile. Also such equipment can usually be put to only the use for which it was intended and it is occupationally immobile.
Other forms of capital are geographically immobile but are occupationally mobile e.g. buildings. Once a building has been set up in a place, it cannot be moved intact to another place, but it can be converted to a hotel or bar. Other forms of capital are mobile both geographically and occupationally e.g. vehicles and hand tools which can be moved from place to place and can also be put to different uses.
Mobility geographically facilitates production. Immobility occupationally makes it difficult to increase output in the short run.
Mobility Of Labour
Labour is relatively mobile geographically, but less so occupationally in that people can be moved from one place to another but find it hard to change occupations if it is highly specialized. If a person moves from one occupation to another occupation on higher level, either in terms of remuneration or in terms of status or both, this is called Vertical occupational mobility, e.g. if an accountant becomes a manager. If movement is from one occupation to another on the same level, this is called horizontal occupational mobility. Also in this case the social status of two occupations is more-or-less the same.
Although labour is relatively mobile geographically, there are factors, which act as barriers to its mobility geographically.
Barriers to Geographical Mobility of Labour
- Cost of Movement
The cost of movement from one place to another place can be a prohibitive factor in the geographical movement of labour.
- Shortage of Housing
This can be a prohibitive factor especially in urban areas. Thus if person is working in a rural area, he may be reluctant to move to an urban area, for example, if he is living in his own house or a cheaper house in the rural area, he may not be able to find a house for himself and his family in the urban area.
iii. Education of Children
A person may be reluctant to move from one area to another because he does not want to interrupt the education of his children either because it is late in the year and the children cannot find school places in the new area or because the new area has a different education system, e.g. it is a different state of the country or a different country altogether.
- Social and Family Ties
If a person has been living in a place for a long time, he may be reluctant to leave and go to another place because he does not want to leave his friends and relatives (especially the aged parents) behind.
- Geographical and Economic Factors
Some areas are known to be hostile areas, i.e. they are too hot or too cold consequently people are reluctant to go to work in such areas. Also in addition to factors of shortages of housing in urban areas referred to earlier, people may be reluctant to leave their jobs in rural areas because of higher cost of living in urban areas.
- Personal Talents
There are some occupations which require special talents which not everybody has e.g. the occupation of engineers, statisticians and surgeons.
- Length of Training
It requires a long period of training to acquire the necessary skills for a particular occupation; this can act as a discouragement to go into such occupations.
iii. Capital Limitations
In order for a person to go into such a business enterprise, he has to have the necessary capital. Hence lack of capital can act as a barrier to entry into commercial activities.
- Class Limitations In societies, which operate a caste system, people belonging to a particular caste may not do certain jobs. This will also happen to countries, which practice racial discrimination. People belonging to a particular race may not be allowed to do certain jobs, which are reserved for other races. The Mobility geographically facilitates production while immobility occupationally discourages it. Immobility geographically and occupationally leads to structural unemployment and unemployment due to technological progress.