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Ivolgina Maria, a 1st year student
PhD Olena Zhukova, science and language supervisor
Donetsk State University of Management
FAÑTORS OF
PRODUCTION: CAPITAL AND LABOUR
Factors of production
are resources used by firms as inputs for a good or service to be produced.
Factors of production are as follows: capital, labour, find natural resources.
In economic theory, the
term “capital” refers to goods and money used to produce more goods and money.
Classifications of capital vary most general distinction is the one made
between physical, financial, and human capital.
Physical capital is
land, buildings, equipment, raw material; bonds, stocks, available bank
balances are included in the financial capital. They both make a great
contribution to production.
To group capital into
fixed capital and circulating capital is common practice. The former refers to
means of production such as lend, buildings, machinery and various equipment.
They are durable, that is, they participate in the production process over
several years. Circulating capital includes both non-renewable goods, such as
raw material and fuel, and the funds required to pay wages and other claims
against the enterprise. Non-renewable goods are used up in production cycle and
their value is fully transferred to the final product.
Human capital is
knowledge that contributes “know-how” to production. It is increased by
research and disseminated though education. Investment in human capital results
in new, technically improved, products and production processes which improve
economic efficiency. Like physical capital, human capital is important enough
to be an indicator of economic development of a nation.
It is common, in
economics, to understand labour as effort needed to satisfy human needs. It is
one of the three leading elements of production. Labour has a variety of
function: production of raw material, manufacturing of final products,
transferring things from one place to another, management of production, and
services like the ones rendered by physicians and teachers.
One can classify labour
into productive and unproductive. The former produces physical objects having
utility. The latter is useful but does not produce material wealth. Labour of
the musician is an example.
Unlike other factors of
production, for example capital, once workers are employed, their efficiency
can vary greatly with organization of work and their motivation.
Demand for labour is
influenced by the demand for goods produced by workers, the proportion of wages
in total production costs, etc. The supply of labour depends upon the size of
population, geographic mobility, skills, education level(human capital), ets.
Workers supply labour either individually or through trade unions. If demand
for and supply of labour are not equilibrium, there is unemployment. The rate
of unemployment is a percentage of the total labour force without a job. It is desirable
for an economy t have the lowest possible unemployment rate and to achieve
higher employment as neither full use of resources nor maximum level of output
can be achieved in an economy having unemployment.
Factors of production
are combined together in different proportions in order to produce output. It
is assumed in economics that one should choose the combination of factors which
minimizes the cost of production and increases profits.
The third factors of
production, natural resources, poses too many economic problems to be discussed
here. We will analyze them in the following unit.
References
1.Sheffrin (2003). Economics:
Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice
Hall. pp. 4. ISBN 0-13-063085-3. Sullivan, Arthur; Steven M.
2.Parkin, Michael and Esquivel,
Gerardo, Macroeconomía, Addison Wesley, (1999), p. 160.
3. Milton Friedman (2007), Price
Theory, pp. 201-02.
4.Classical price theory follows
"costs of reproduction" and does not allow for "factor"
gains."