Factors of production

Resources used for production

Types:

Land
Capital
Labour
Entreprenuership

Land

Natural resources
Characteristics

A gift of nature
Limited in supply
Land is immovable
The supply of land involves no opportunity
cost

Capital

Man-made resources used for further

production
Examples: machines, raw materials, tools
Features:

Man made

It raises the productivity of other factors

Land or Capital?

Ice at Mount Everest

Ice in a skiing field
Sea water
Sea water in a seafood restaurant
Sharks in the Atlantic Ocean
Sharks at the Ocean Park

Human Resources

Labour

Entreprenuership

Labour Supply

Measured in terms of time (man hour)

Labour supply = no. of workers x no. of
working hours per worker

Labour Supply

Measured in terms of time (man hour)

Labour supply = no. of workers x no. of working

hours per worker

Factors affecting labour supply:

Size of population
Size of working population
No. of working hours

How to increase labour supply?

population growth (by natural growth or

immigration)
monetary rewards
import of labour from other countries
retirement age (e.g. from 60 to 70)
school leaving age (e.g. from 16 to 17)

Labour productivity

Measured in terms of output per unit of

labour
Average labour productivity = average output per man hour
June 2005

Firm A

Firm B

Number of working hours per worker

240

180

Units of output

7200

6400

30

35.6

Average labour productivity

Firm B has a higher labour productivity than firm A

How to raise labour productivity?

Better education and training

Other factors of production( quantity &
quality)
Better management or organization. e.g.
division of labour
Better working conditions
Greater fringe benefits (housing
allowances,medical care,bonus, meal..)

Mobility of Labour

Geographical mobility: the ease at which

labour can move from one working place to
another.

Occupational mobility: the ease at which

labour can change from one type of job to
another

Factors affecting occupational

mobility

Monetary / non-monetary rewards

income of the present job (higher
opportunity cost in changing job)
mobility
Specialization of skills mobility
Licensing requirements mobility
Higher age of workers mobility

Factors affecting geographical

mobility of labour

Transport
Social factors
Economic conditions ( home country/other
countries)
Political stability
Immigration or emigration restrictions

Factor returns

Rent
Interest
Wage
Profits