Factors of production

1
Factors of production

• inputs
• resources for production
• Four types
• Land
• Capital
• Labour
• Entrepreneurship

2
Land

• natural resources used for
  production
• e.g. sunshine, rain

3
Characteristics of land

• A gift of nature
• As land is not created by men, the opportunity
  cost of creating land is _________.

- Any opportunity cost of obtaining land?
4
Characteristics of land

• Limited in supply
• Why?

- Because the supply of land cannot be
increased by human efforts.
5
Characteristics of land

• Land is geographically immovable
• The location of land is decided by nature and
  cannot be moved from one place to another place.

- Can we move coal?
- Can we move a coal mine?
Coal (a primary product) ? coal mine (land)
6
Capital

• man-made resources (or resources
  made by men) to assist production
• e.g. machines, tools and equipment

Why should we use capital? E.g. A fisherman can
catch two fishes by hand in one day. He has to
use three days without catching fish to make a
fishing net. Is a good for him to make the
fishing net? Why?
7
Characteristics of capital

• Capital is man-made
• Increase in productivity

8
Different terms of capital
9
Related concepts of capital

• Capital formation the production of capital
  goods
• Depreciation of capital
• Capital consumption the wearing out of capital
  goods
• Capital obsolescence capital goods become
  obsolete or useless because of technological
  changes
• Capital maintenance the process of replacing
  capital goods
• Capital accumulation an increase in capital
  goods due to capital formation is faster than
  capital consumption

10
Labour

• human efforts, both mental and physical,
  used in the production process.

11
Characteristics of labour

• Human resources
• Rest and leisure are important (psychological
  effects)
• There are some ways to increase labour
  productivity (e.g. education and training)

12
Labour supply

• is measured by the total working hours of
  
  the workers involved in production
• Why not measured in terms of the number of people
  of a country?
• Because not all the people work
• Why not measured in terms of the number of
  workers of a country?
• Because not all workers have the same working
  hours each day

13
Factors affecting labour supply
- Birth rate - Death rate - No. of immigrants -
No. of emigrants
Size of population
Size of working population (age 15-60)
Labour laws -No. of working hours per day (and
working days per week) -No. of holidays per
year
No. of working hours
14
How to increase labour supply?
- Natural growth - Immigration
Population growth
Improving the health of labour
- Raising the retirement age - Lowering the
school-leaving age
Greater monetary rewards (higher wages)
Importation of foreign labour
15
Labour supply

• Worksheet
• Study the following table and find which country
  has a larger labour supply?
• Country H Country
  K
• Population size 6.7 million 9 million
• Percentage of population that works 82
  65
• Number of working hours per day 8 hours
  7 hours

16
Labour productivity / efficiency

• measures the output per worker per unit of
  time (e.g. output per man- hour)
• E.g. Worker As productivity is 10 toys per
  man-hour whereas Worker Bs productivity is 13
  toys per man-hour
• Which of the above workers has a higher
  productivity?
• Worker B

17
Factors affecting labour productivity
Rewards and benefits
Education and training
Health of workers
Quantity and quality of capital goods -
mechanization
Division of labour
18
Labour productivity

• The following table shows the data about the
  banking sector in Hong Kong. Find the average
  annual productivity growth rate of the industry
  between 1995 and 2000.
• Year 1995 2000
• Number of employees 358478 406545 Value of total
  output (million) 248866 326540

19
Comparison

• Which one is more important labour supply or
  labour productivity?

20
Comparison

• Given Two countries with same labour
  productivity but Country A has larger labour
  supply than Country B.
• Which country can produce more goods and
  services?
• Country A
• Which concept is more important labour supply or
  labour productivity?
• Labour supply

21
Comparison

• Given Two countries with same labour supply
  but Country C has lower labour productivity
  than Country D.
• Which country can produce more goods and
  services?
• Country D
• Which concept is more important labour supply or
  labour productivity?
• Labour productivity
• So both concepts are important

22
Different types of wage payments
Profit-sharing scheme
Piece rate
Basic salary plus commission / tips
23
Different types of wage payment

• What determines the type of wage payment to be
  used?
• It depends on the nature of the production the
  labour involved.

24
Piece rate

• Wage is paid according to the quantity of output
  produced
• i.e. 100/shirt
• Is is good to calculate the wage of a teacher by
  piece rate? Why?
• Nature of production output can be measured
  easily (e.g. standardized goods)

25
Time rate

• Wage is paid according to the total amount of
  working time.
• e.g. wage/hour wage/month
• Examples wages of teachers / civil servants /
  domestic servants / secretaries
• Nature of production output is difficult to
  measure (non-standardized goods)

26
Basic salary plus commission tips

• Commissions a of the sales volume
• e.g. insurance /property agents
• Tips extra given by consumers
• e.g. waiters
• Nature of production services (e.g. marketing,
  retailing and catering industries)

27
Profit-sharing scheme

• Bonus is given in addition to salary ( of net
  profits earned by the firm)
• e.g. year-end bonus in banks
• Nature of production trading
• e.g. managers and (CEO)
• i.e. Chief Executive Officer

28
Comparison of different types of wage payments

• Table 4.2 on P.68
• Words you should know
• Incentives
• Cost saved
• Quality of goods
• Supervision / Monitoring
• Easy to administer

29
Entrepreneurship

• Entrepreneurship refers to human efforts which
  organize all resources, make decisions and bear
  risks.
• Entrepreneur is the owner of a firm who has to
  make decisions and bear risks.

30
Mobility of resources/factors

• Two types of mobility
• Occupational mobility - the ease of resources
  to move from one job/use to another job/use
• Geographical mobility - the ease of resources
  to move from one place of work to another

31
Mobility

• Occupationally mobile vs occupationally
  immobile
• Geographically mobile vs geographically
  immobile
• High / low occupational mobility
• Increase / decrease geographical mobility

32
Occupational mobility

• Assumption Other things being equal
• Monetary reward wages, bonus
• Low wage jobs --gt high wage jobs
• Non-monetary rewards social status, promotional
  prospect, job satisfaction
• Low --gt high

33
Occupational mobility

• Skill of workers
• Skilful workers / professionals - Lower
  occupational mobility - Higher opportunity
  cost
• Trade unions and professional associations
  restrictions
• Membership --gt licence or work permit - Low
  occupational mobility

34
Occupational mobility

• Age of workers
• Older workers - lower occupational
  mobility - slower learners to new skills

35
Geographical mobility

• Transportation
• More convenient (less time-consuming)
• Less costly or expensive
• ---gt Geographical mobility increases

36
Geographical mobility

• Political factors
• Political unrest or instability
• Uncertainties or high risk
• Wars
• --gt higher geographical mobility

37
Geographical mobility

• Home country economic conditions
• Low standard of living
• High unemployment
• Low pay
• Famine
• --gt high geographical mobility

38
Geographical mobility

• Foreign country economic conditions
• High standard of living
• Low unemployment
• High pay
• --gt high geographical mobility

39
Geographical mobility

• Social factors
• Serious racial / sex discrimination
• Language barrier (language difference)
• Different customs and ways of living
• --gt high geographical mobility

40
Geographical mobility

• Immigration and emigration regulations
• Stricter foreign immigration policy
• Stricter home emigration policy
• --gt low geographical mobility

41
Geographical mobility

• Immigration and emigration regulations
• Stricter foreign immigration policy
• Stricter home emigration policy
• --gt low geographical mobility