1.3 Factors of production

Production

Converting resources into goods and services.

Factors of production

1.       Land

Businesses need a plot of land to locate their premises, outlets, car parking, etc. It also includes all natural resources, e.g. forests, rivers, mines, etc. Owners of the land get rent as reward.

2.       Labour

It includes all human resources both physical and mental efforts. Labours get wage/salary as reward.

3.       Capital

It is also known as artificial resources, including all man-made resources. Two types of capital are:

·         Fixed capital (e.g. offices, tools, furniture, etc.)

·         Working capital (e.g. stocks)

Investor of capital retains interest as reward.

4.       Enterprise/Entrepreneur

The entrepreneur plays the following roles:

1.      Innovator: Making money from new and innovative ideas.

2.      Organizers: Responsible for organizing other factors of production.

3.      Risk-taker: Risk of losing money if loss incurs.

4.      Decision-maker: Making all key/major decisions.

Entrepreneurs retain profit as reward.

Labour-intensive production

Relies mainly on labour, esp. in developing nations like China, India, Bangladesh, etc (where labour cost is cheaper).E.g. hotels, hairdressing, farming, etc.

Capital-intensive production

Relies mainly on capital, esp. in developed nations like USA, UK, Japan, etc (where updated machines are available).E.g. transport, car manufacturing, refining oil, etc.

Specialization and division of labour

Division of labour is dividing the whole production process into different stages. Hence, each labour is concentrating in performing a specific task and thus becoming specialized in his/her area of work.

Advantages of specialization:

1.         Practice makes a man perfect: Doing a job repeatedly leads to perfection.

2.         Increased output: Efficient workforce leads to increased productivity.

3.         Saves time: No time is wasted in switching jobs.

Disadvantages of specialization:

1.         Monotony: Preforming a task repeatedly leads to boredom and ultimately dissatisfaction.

2.         Immobility: Difficulty in switching occupation.

3.         Lack of variety: Homogeneous goods are produced.

N.B.“Dedication and patience ultimately lead to success.”

Wish for a prosperous life!