Question

What are the Factors of Production? What are the Characteristics of Factors of Production? Illustrate. 

Answer 1

Factors of Production - - - - - - - - - -

The process of production requires many inputs or elements, without which production is not possible. In economics all these inputs or elements are called factors of Production, and they have been classified as follows.

 

1.  Land - - - - - - - - - -

It is the most basic factor that is needed for any production activity. However, land here does not mean any the surface area, but it includes all natural resources below or above the land surface. In fact, land includes all the resources which are free gift of nature. That is to say that land includes all those resources which have not been created by human beings but have been received free from nature. In this way, land surface, all mineral resources below the ground, forests, hills, rivers, seas, air, water, etc. are treated under the category of land.

 

2.  Labour - - - - - -

The second essential factor of production is "Labour". In economics, it connotes any work by body or mind done for remuneration.

A work done for a pleasure of work itself like singing, dancing, playing, it is not labour if it is not done for remuneration. The labour is mostly divided into three categories.

1. Unskilled

2. Semi-skilled and

3. Highly-skilled

Unskilled work is considered that labour or work for which no prior training or experience is necessary and can be done by anybody. Semi- skilled work is that labour in which some training, education or experience is necessary but which can be learnt easily. Highly skilled labour is that work for which good amount of training and education is essential. This is may be both physical and mental. Peter Drucker has termed a mentally skilled person as a "Knowledge Worker."

 

3.  Capital - - - - - - - - - -

In economics, capital means those resources which are man made. They are defined as produced means of production. Accordingly all those means/factors which have been produced by human effort and which are being further used for production activity is capital. Accordingly, a building, machinery, plant, equipment, road, railway line, bridges etc. will be termed as capital.

The main difference between land and capital is that land is free gift of nature, while capital is man made.

 

4.  Entrepreneurship - - - - - - - - - -

All the above factors of production are important for any production activity to take place but actually all these are passive factors. They will not work unless there is somebody who can make them work. Entrepreneurship is the factor which activates these factors and make them work. That is why it is called the catalytic agent. Entrepreneurship involves a variety of activities which are as follows:

(i)  Deciding to undertake production activity.

(ii) Arranging factors of production.

(iii) Fixing the payment of other factors.

(iv) Bearing the risk and uncertainty of production.

(v) Undertaking Innovation and

(vi) Taking all final decisions about the production process and the organisation.

The person undertaking the above mentioned entrepreneurial activities is termed as Entrepreneur.

 

Characteristics of Factors of Production - - - - - - - - - - -

 

The factors of production generally possess the following characteristics.

1.  Complementarity - - - - - - - -

All factors of production are complementary to each other. It means that production is possible only when all factors of production are present. If any one factor is absent production activity is not possible.

2.  Substitutability - - - - - - - -

The factors of production are not merely complementary, they are also substitutes. This means that one factor of production can substitute another factor to some extent.

3.  Specificity - - - - - - -

Factors of production also have this characteristics that some factors are specific to a commodity. It means that it can be used for a specific product only and not for others. For example, some land is good only for the production of paddy and not for wheat or anything else. This will be specificity of that land.

4.  Mobility - - - - - - -

Mobility is also a characteristic of factors of Production. Mobility is of two types -

1.  Occupational and 

2.  Spatial or Locational.

Occupational mobility means the ability of a factor of production to move from one occupation or industry to another. Spatial mobility occurs when a factor of production moves from one place to another place. 

The process of production requires many inputs or elements, without which production is not possible.