FACTORS OF PRODUCTION

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Ch. 8 FACTORS OF PRODUCTION
FACTORS OF PRODUCTION
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• P.151 Resources are used for production are
  classified as
• human resources - labour and entrepreneurship
• natural resources land
• man-made resources capital
• These resources are called the factors of
  production. Factors of production are the
  resources used in production.

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Labour
Factors of Production
Land
Capital
Entrepreneurship
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P.151 8.1 LABOUR
LABOUR
Mental and physical human effort used in
production.
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Labour
Labour is a factor of production that provides
physical and mental human efforts in any
production activity.
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Labour
labour productivity
quantity of labour
(1) The size of the population
(1) Education and training
(2) Quantity and quality of capital and the use
of new technology
(2) The proportion or of the working population
(3) Method of organising labour / management
(3) Amount of Work Number of working hour
(4) Better incentive scheme
(4) Better working environment
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Labour supply and labour productivity
Labour is measured in terms of man-hours.
A man-hour is the amount of effort put by a
worker in one hour.
Labour supply number of workers x working hours
of each worker
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Quantity of labour
(1) The size of the population
Birth rate, death rate, immigration and
emigration affect the population size.
Generally speaking, a larger population will have
a larger labour supply.
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Quantity of labour
(2) The proportion of the working population
Two countries may have the same population size
but different of working populations.
An economy which has a larger proportion of
working population has a larger labour supply.
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Quantity of labour
(2) The proportion of the working population
The proportion of the working population is, in
turn, affected by the composition (age sex) of
the population.
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Figure 6.1 Age distribution of Hong Kongs
population
Age
9.8
10.9
11.2
70.8
71.5
71.6
Source Hong Kong in Figures 2000
19.4
17.6
17.2
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Population pyramid 1961
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Population pyramid 2001
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Total population
Working population
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Quantity of labour
(3) Amount of work Number of working hour
The amount of work a worker does depend on how
many hours each worker is willing to work, the
working capacity of each worker and the incentive
to work.
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Quantity of labour
(3) Amount of work
For instance, if the tax rate on income is very
high, workers may supply less labour service. If
the promotion prospects and working relationship
with colleagues are good, workers are willing to
work longer hours.
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Hong Kong people work very long hours
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P.154 Mastering econ data 8.1
Country B
Country A
10 million
8 million
Population size
60
70
of working population
40 hours
46 hours
No. of working hours
240 million man-hours
257.6 million man-hours
Labor supply
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Factors??affecting??the labour??quality or
productivity ???
The average labour productivity is the quantity
of output produced per unit???of labour, for
example, output per man-hour. (improve more)
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Labour quality/productivity
(1) Education??and training??
Educated workers are usually more open to new
ideas and practices.
They are also more ready to learn new skills.
Workers who are trained are more skilful at their
jobs.
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Labour productivity
(1) Education and training

• Technical education and on-the-job training
  improves workers technical know-how. Workers can
  produce more output.

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P.155 Labour productivity
(2) Quantity and quality of capital and the use
of new technology
Workers can be more productive if there are
sufficient machines and tools.
New technology can give an even greater output
with the same input of labour.
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P.156 Labour productivity
(3) Method??of organising labour / management??
When a labour force is organized properly, they
will have higher productivity.
Good management can enhance the efficiency of a
labour force through better co-ordination and
achieve an increase in productivity.
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P.156 Labour productivity
(4) Better incentive scheme
Good promotion prospects and fringe benefits,
such as medical insurance and a housing
allowance, can increase the working incentive.
It will lead to improved job performance.
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P.156 Labour productivity
(4) Better working environment
A better working environment, with good lighting,
ventilation and air-conditioning, etc., can also
increase labour productivity.
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P.156 Labour productivity
(4) Better working environment
Workers can work better in a clean and tidy
working environment with air-conditioning and
good lighting.
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Number of workers employed
Number of working hours per worker
Units of output produced
Firm A
100
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48,000
90
10
49,500
Firm B
100 x 8 hours
1) Total working hours of firm A
____________ ______________
800 man-hours
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Number of workers employed
Number of working hours per worker
Units of output produced
Firm A
100
8
48,000
90
10
49,500
Firm B
60 units of output per man-hour
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Number of workers employed
Number of working hours per worker
Units of output produced
Firm A
100
8
48,000
90
10
49,500
Firm B
90 x 10 hours
900 man-hours
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Number of workers employed
Number of working hours per worker
Units of output produced
Firm A
100
8
48,000
90
10
49,500
Firm B
55 units of output per man-hour
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Number of workers employed
Number of working hours per worker
Units of output produced
Firm A
100
8
48,000
90
10
49,500
Firm B
5) As a result, firm A has a higher average
labour productivity than that of firm B.
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Number of workers employed
Number of working hours per worker
Units of output produced
Firm A
100
8
48,000
90
10
49,500
Firm B
6) Labour productivity Total output / Total
number of man hours P.157 MED 8.2
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P.158 Different types of wage payment systems PPT
Presentation