Factors of Production
From ZuluNotes - Free Leaving Cert Notes
| Factors of Production | |
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| Subject: | Economics |
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| Level | H&O |
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In Economics, there are four main Factors of Production: Land, Labour, Capital and Enterprise.
Each of these factors has it's own demand curve, supply curve and price (e.g. a wage for labour)
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Marginal Revenue Productivity
Marginal Revenue Productivity is the extra revenue earned when an additional unit of factor of production is employed. For example, if a busy bar hires an extra bartender who can serve €1000 worth of drink in a night, then the MRP of that unit (bartender) is €1000 per night.
MRP is also subject to the Law of Diminishing Returns. In our example above, if more and more bartenders are hired, eventually behind the bar will become crowded, the bartenders won't resume writing service be able to get to the taps, and the extra revenue that each new bartender (unit) can earn will begin to fall.
Land
House land differs to other Factors of Production
- Fixed supply
- No initial cost to society
Rent is price determined, not price determining.
Increase in price of land
- Increase in population
- Land for industry
- Transport
- Agriculture
- Leisure
- Tourism
Importance of opportunity cost
- Wages
- Social costs and benefits
- Economic realism
- Consumer behaviour
Location of firms and industries
Location factors to be considered:
- Land
- Labour
- Capital and Infrastructure
- Back up services
- Government regulations
- Markets
Labour
All man made effort used in the production of goods and services.
minimum wage: €7.65 (Ireland) below which labour will not be supplied. As wages increase supply of labour increases accordingly, though at a certain point workers become satisfied with wage levels and begin to swap their work for leisure and vocational time. (law of diminishing returns.)
Higher wages are demanded with more training, natural ability and skills of worker.
Geographical and occupational mobility.
Capital
Anything 'man-made' that attributes itself to benefiting the production of goods and services. It is divided into 'Social capital' (capital owned by society as a whole; eg: harbours, infrastructure [etc.]), Working capital (the amount according to which can fluctuate regularly; eg: stock, raw materials [etc]) and 'Fixed capital', (remains the same; eg: buildings, machinery [etc.]).
Enterprise
The individual who uses the initiative to bring together all other factors of production (land, labour and capital)together whilst taking a risk in order to produce goods and services in the hope of making a profit.
Residual earnings: only gets paid after all other factors of production have been paid for. Only factor of production which can receive a negative income.
Profit: Loss, normal profit & (SNP)Super Normal Profits.
