1. THEORY OF ECONOMIC RESOURCES
Chapter 6

2. Chapter outlines Production and its types Land Characteristics of land
Productivity of land
Extensive vs. intensive cultivation
Human resources
Labor
Characteristics of labor
Efficiency of labor

3. Contd.. Mobility of labor Capital resources Capital
characteristics of capital
Forms of capital
Capital formation
Process of capital formation
Sources of capital formation
Organization or entrepreneur
Types of organization

4. What is production?
Human beings are iterested to satisfy their wants by consuming more and more good and services. But goods can not be available unless they are produced.
In economics Production refers to all the activities undertaken to provide goods and services for satisfying human needs and wants for which people are willing to pay value or price.

5. Production Production take place in two forms Production of goods and
Production or supply of services

6. Land or natural resources
The word land in economics , has very wide meaning. It includes all natural things, which can be used for producing goods and services. In other words, all natural resources are known as land. Land has some characteristics which are different than other resources.

7. Characteristics of land
Land , as a free gift of nature and the prime factor of production, has the following important characteristics.
Free gift of nature
Fixed quantity and inelastic supply
Land is permanent
Land is immovable
Land differs in fertility and productivity
Land is passive factor
Productivity

8. Productivity of land
Agricultural production in a country depends upon two factors; total land available and the productivity of land. All land do not possess equal productive capacity. Some land are so fertile that with small amount of labor and capital, they produce sufficient output while some are barren deserts. The productivity of land is a relative term, depending upon some factors. These are…
Natural factors
Human factors
Use of capital
Means of transport
Location

9. Extensive vs. Intensive Cultivation
When population in a region rises and the requirements food and other goods extend, countries make plans to increase agricultural production. For this purpose, they try to use land resources to the maximum. Two alternative methods are available in this regard.
Extensive cultivation and
Intensive cultivation

10. Extensive vs. Intensive Cultivation
Extensive cultivation is the method of increasing the agricultural output by bringing new land under cultivation. This method is applicable in country where, compared to labor and capital stock, land is abundant and is available cheaply. For instance, Australia and Canada have vast areas of cultivable land. They can easily bring more land under cultivation due to expansion of irrigation canals and installation of tube wills on large scale. Even many counties in Africa and Asia have cleared natural forests and increased their cultivated areas.

11. Extensive vs. Intensive Cultivation
Intensive cultivation means that agricultural output is increased not by using additional land but by using more capital and labor on existing land. This method is applied in countries where cultivable land is less abundant. There the man-land ratio is high and land is costly. Chances for extensive cultivation are negligible. Under such circumstances intensive cultivation is useful. For example the whole of Europe and Japan are thickly populated. New land are not available for cultivation. These countries have increased their output through intensive use of their land. In this method, more and more quantity of capital and labor in the form of fertilizers, improved seeds, better irrigation facilities, plant protection and chemical are applied. Greater use of machinery at various stages cultivation, preparation, ploughing of soil, sowing harvesting and thrashing increases output manifold.

12. Human Resources
Human resource or labor force of country include the total labor supply along with their education, training, skills, experiences, discipline and motivation for work.
Labor means physical or mental work undertaken for monetary reward. Any manual or mental activity, which undertaken for pleasure or personal happiness, is not labor. For example, binging up of children by the mother, self gardening as a hobby are not treated as labor. The act begging is also not labor. Labor has some characteristics

13. Characteristics of Labor
Labor as a factor of production, differs from other factors in many respects. It has the following features…
Labor is perishable more then other factors
It can not be separated from laborer
labor is less mobile
Weak bargaining power
Laborer is human not a machine
Difference in work efficiency

14. Characteristics of Labor
Difficult to find the cost of production of labor
Labor is active factor
Labor creates capital
Dual role of labor

15. Efficiency of Labor
Efficiency of labor refers to the productive capacity of labor. If a laborer can do more or better work than others, we say his efficiency or productivity is higher.
Following are the factors influencing labor efficiency
Personal qualities of worker
Health and physique
Motivation
Education and trainings.
Experience

16. Efficiency of Labor Working condition and wage level
Working environment
Division of labor
Quality of machines
Chances of promotion
Social and political conditions
Social condition
Political stability and peace
Employer – employee relations

17. Mobility of labor
To achieve high level of economic efficiency, make full utilization of economic resources and to increase rate of economic development, grater mobility of labor is desirable.
Meaning : mobility of labor refers to the ability and capacity of labor to change over to new job, new position or shift to a different place of work. Mobility of labor is of five kinds
Geographical mobility
Horizontal mobility
Social mobility
Occupational mobility
Vertical mobility

18. Factors Effecting Mobility
Large number of factors affect labor mobility. The important factors are:
Wage differences
Condition of work
Ambition
Peace and security
Means of transport and communication
Education (educated workers show grater mobility)

19. Obstacles in Mobility
The following obstacles place restrictions on mobility of labor
Love for relatives, home sickness
Difference in climate
Difference of customs
Language barriers
Government restrictions
Illiteracy and ignorance
War and political disturbance
Incompetence
Health

20. Capital Resources
To produce goods and services, along with land and human labor, some capital is also required. Capital makes the task of production more easier and faster. Capital consists of all those man-made resources which help in the production process and are available in the form of buildings, machinery, roads, tools, equipments, computers and materials.
Capital can be defined as that part of wealth which can be used for further production of wealth

21. Capital Characteristics
Capital has the following characteristics .
Capital is the result of human labor
Capital is passive factor
Capital helps in production
Capital depreciates
Capital is more mobile than other factors
Capital is created when saving are invested

22. Forms of Capital There are various forms of capital Fixed capital
Working capital
Sunk capital
Floating capital
Money capital
Real capital

23. Productivity of Capital
Productivity of capital refers to the ratio between the quantity of output and the amount of capital used
When referring to physical capital, productivity of capital means the total quantity of goods and services that is possible to get from a unit of capital output. Following are the factors which affect productivity of physical capital
Combination of factors
Quality of labor
Quality of raw material
Maintenance and repair facilities
Management and supervision

24. Capital Formation
Capital formation or accumulation means the increase in the stock of capital in a country. Capital has many forms like machines, buildings, materials etc. so capital formation refers to increase in production of machines, tools, equipments, construction of roads, dams, canals, factories, educational institutions, powerhouse and laying of pipelines. Process of capital formation: capital formation take place when individuals or nations do not consume the whole of their current income. They save a part and invest it. The invested amount is capital. When as a result of investment, machinery, equipment or buildings are produced it is then known as capital formation. Accumulation of capital in money form is not capital formation. Capital formation refers to increase in the material and physical stock of capital

25. Sources of Capital Formation
Capital formation comes into existence as a result of savings which need the following three steps…
Act of saving: people must cut current consumption to have saving
Mobilization of saving: utilization of savings through banks
Investment of saving: idle savings become hoarding and non-productive . Banks play a key role in putting savers money into the hands of investors and make it productive. Two major sources of capital formation are…
Domestic or internal sources and
External sources

26. Sources of Capital Formation
Domestic or internal sources include four steps to increase savings…
Individual savings
Corporate savings
Public savings and
Deficit financing
External sources include:
Foreign loans and donations
Direct private investment by foreign firms (FDI)

27. Organization or entrepreneurship
organization is the fourth factor of production. An organizer is an individual or body of individuals who brings the other three factors together and makes production possible. The organizer is also called entrepreneur. It is the entrepreneur who hires other factors, combine them in suitable proportion, supervises the work, purchases the raw materials and sells finished goods. Prof. Knight defines an entrepreneur as “an entrepreneur is a person who performs the dual functions of risk-taking and control.

28. Role and Functions of Entrepreneur
The entrepreneur occupies a very important place in production. He specific functions performed by him are as given below…
To prepare plan
Selection of site
Provision of other resources
Combination of factors
Supervision and management
Sales of goods and publicity
Risk taking
Payments to the factors
Innovations and search for markets.

29. Types of Organization Sole proprietorship Partnership
Business may take different forms, depending upon the decision about ownership and control of business. Following are various types of organization…
Sole proprietorship
Partnership
Company (joint stock)
State enterprise