ECO - 1.2 Basic

• Factors of Production


  Resources used to produce goods and services
• 4 types of Factors of Production

  • Land
  • Labour
  • Capital
  • Enterprise
• Land


  • All natural resources found on the earth that are used for production
  • Includes what's beneath the land, what occurs naturally on land, and what's found in/on them
  • Can be renewable and non-renewable
• Labour


  • All human effort used in producing goods and services, including both mental and physical contributions
• Capital


  • Man-made resources that help in the production of goods and services, such as buildings, machinery, tools, and equipment
• Enterprise


  • Organizational skills of individuals (the entrepreneurs) who organize other factors of production to produce goods and services and take/bear risks
• Factor Rewards


  • Rent
  • Wages/Salary
  • Interest
  • Profits
• Factor Mobility


  The ease with which factors of production can be moved from one productive activity to another, without incurring significant costs or a loss of output
• 2 types of Factor Mobility


  • Occupational Mobility (task mobility)
  • Geographical Mobility (location mobility)
• Occupational Mobility


  The ability to move factors of production between different productive tasks
• Geographical Mobility


  The ability to move factors of production to different locations
• Land is relatively less mobile compared to labour and capital resource - it tends to be geographically immobile, but have some degree of occupational mobility
• Land Occupational Mobility


  • Depends on the type of land used, e.g. fertile land may be used for different types of farming, while high mountainous area is difficult to convert for other uses
• Land Geographical Mobility


  • Depends on the type of land resources and transportation costs, e.g. physical piece of land itself is in a fixed position and cannot be moved, but some land resources like coal and sand can be transported more easily
• Labour Occupational Mobility


  • Depends on the level of education and training (skills and qualification), and the cost and length of training, e.g. workers with limited or highly specialized skills tend to be less mobile between different industries
• Labour Geographical Mobility


  • Depends on family ties, cost of relocation, immigration controls/regulation changes, and tax rates, e.g. people may be reluctant to relocate if they have a close-knit family or if the cost of relocation is high
• Occupational mobility


  • Workers tend to be less mobile between different industries. E.g.: Pilots cannot become surgeons overnight without years of training → occupationally immobile.
• Cost & length of training

  Low cost & shorter training period → easier for workers to retrain to take on other jobs/ tasks → increase labour occupational mobility.
• Factors affecting Labour Geographical Mobility

  • Family ties
  • Cost of relocation (E.g.: Education costs, housing costs, availability of housing)
  • Immigration controls/ Regulation changes
  • Tax rates
  • Age
• Occupational mobility of capital

  Refers to the purpose/ use of the capital goods. Mobile – capital goods can be used for different functions/ purposes.
• Occupational mobility of capital


  • A delivery van used by a book publishing company can be sold to a toy manufacturing company to distribute its toys.
• Geographical mobility of capital

  Refers to where capital goods are used. Mobile – capital goods can be moved from one place to another.
• Capital goods have some degree of occupational mobility, and tends to be geographically mobile.
• Factors affecting Capital Occupational Mobility

  • The purpose/ function of the capital good
  • Some capital goods can move easily between alternative tasks (task mobility) as they have many functions
  • Some capital goods have limited task mobility as they have very specialized functions – can only be used for specific task
• Factors affecting Capital Geographical Mobility

  • Availability of proper infrastructure
  • Transport cost
• Some resources are non-renewable and cannot be replaced once depleted, BUT some scarce resources are renewable.
• Increasing both quantity & quality of other factors of production enables more goods & services to be produced.
• Factors of Production


  • Land
  • Labour
  • Capital
  • Enterprise
• Rewards to factors of production

  • Rent
  • Wages
  • Interest
  • Profit
• Ways to increase Quantity of Land


  • New discoveries of fossil fuels, minerals & other natural resources
  • Advances in technology resulting in new equipment and oil extraction techniques
  • Planting & growing new trees
  • Increase in rents may persuade more landowners to release their lands for productive uses
  • Making use of previously unused natural resources eg by tapping on sun, wind & water to produce energy
• Ways to increase Quality of Land

  • Fertilizers may improve soil conditions & land fertility, allowing more crops to grow
  • Irrigation may improve the quality of land
  • Minimizing the use of chemicals in farming reduces water pollution & improves the quality of land (river & wildlife)
  • Organic farming methods may improve the quality of crops, meat & milk produced
• Factors affecting Quantity of Labour

  • Size of population
  • Retirement age
  • School leaving age
  • Wages
  • Government regulation
• Factors affecting Quality of Labour

  • Education & training
  • Working conditions
  • Healthcare standards
  • Working hours
  • Rewards
• Factors affecting Quantity of Capital

  • Interest payment
  • Technological advancement
  • Decision to produce/ purchase capital goods
  • Tax rates
• Factors affecting Quality of Capital

  • Advancement in technology
  • Tax rates
• Factors affecting Quantity of Enterprise

  • Education & training
  • Tax rates
  • Grants/ loans/ subsidies
  • Economic situation
• Factors affecting Quality of Enterprise

  • Education & training
  • Support for entrepreneurs
• Tax rates


  The amount of money that governments collect from businesses in the form of taxes. High tax rates can discourage entrepreneurship, while low tax rates can encourage it.
• Grants/loans/subsidies


  Forms of financial assistance provided by governments to support entrepreneurship. Grants do not need to be repaid, while loans and subsidies do. These measures can reduce the risk of starting a business and encourage more people to become entrepreneurs.