![]() In the former case, labour-intensive techniques are used and in the latter case capital-intensive techniques are used I he degree of substitution of one factor for another will, however, depend on the most efficient method of production to be used relatively to the cost of the factor to be substituted.įurther, we find that land, labour and capital often get intermixed into one another and it is difficult to specify the contribution of each separately. Similarly, labour can be substituted for capital, and capital for labour in a factor. ![]() By so doing, we substitute labour or capital for land. The “supply of land” does not refer to its area alone, but to its we might regard each unit of a factor as distinct from other units of that factor, but one factor can be substituted for some other factor.įor instance, land can be used intensively by employing more labour or more capital in the form of fertilisers, better seeds and superior techniques. This is not correct because the supply of land can also be increased by clearing it, draining and irrigating it and fertilizing it by the efforts of man and capital. To take land and capital it is said that land is a gift of nature whose supply cannot be increased while capital is man-made whose supply is changeable. ![]() This method gives us a large number of factors of production and each group is regarded as a separate factor.Īgain, the distinction between land, labour and capital is not clear. ![]() Similarly, it is wrong to group together the services of an unskilled worker with that of an engineer, or of an engine driver with that of a waterman in the railways.Īgain, there is little point in grouping together as capital, as diverse as canals, diesel, seeds and machinery it would, therefore, be more accurate to lump together all homogeneous units, whether hectares of land workers or capital goods, and to consider each group as a separate factor of production. According to him, it is more convenient to consider only the land which can be bought and sold as a factor of production, rather than such elements as sunshine, climate, etc. Benham has objected to the wider meaning of land as a factor of production. The above classification of factors has come in for criticisms at the hands of many economists. In modern usage, capital not only refers to physical capital but also to human capital which is the “process of increasing knowledge, the skills and capacities of all people of the country.” It is this human capital which is regarded more important than physical capital in production these days. It includes tools, implements, machinery, seeds, raw materials and means of transport such as roads, railways, canals, etc. It comprises all wealth other than land which is used for further production of wealth. Capital:Ĭapital means all man-made resources. On the other hand, if a person sells his paintings, a singer sings a song for a film and a gardener looks after a garden in payment for money, their services are regarded as labour. But labour does not include any work done for leisure or which does not carry any monetary reward.Ī person painting for leisure, singing a song to entertain his friends, or attending to his garden would not be considered to have done any labour in the sense of economics. It includes the services of a factory worker, a doctor, a teacher, a lawyer, an engineer, an officer, etc. Labour refers to all mental and physical work undertaken for some monetary reward. Marshall “By land is meant materials and forces which nature gives freely for man’s aid, in land, water, in air, light and heat.” Land is, thus, an important factor of production which helps in the production of goods and services in one way or the other. In economics, land as a factor of production does not refer only to the surface of land but to all gifts of nature, such as rivers, oceans, climate, mountains, fisheries, mines, forests, etc. It is customary to attribute the process of production to three factors, land, labour and capital, to which we add organisation. A factor of production is indispensable for production because without it no production is possible. Classification of Factors of Production :Ī factor of production may be defined as that good or service which is required for production. Classification of Factors of Production 2. After reading this article you will learn about: 1. In this article we will discuss about Factors of Production.
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