Question 1:

Write a detailed note on factors of

production.

Factors of production

Factors of production means inputs and finished goods means output. Input

decides the quantity of output i.e. output depends upon input. Input is the

starting point and output is the end point of production process and such input-

output relationship is called as "Production Function".

All factors of production like land, labour, capital and entrepreneur are required

altogether at a time to produce a commodity. In economics, production means

creation or an addition of utility.

Four Factors of Production in Economics:

1.Land is a Natural & Primary

Factor of Production

Land is not created by mankind but it is a gift of nature. So, it is called as

natural factor of production. It is also called as original or primary factor of

production. Normally, land means surface of earth. But in economics, land has a

wider meaning.

From the above picture it is clear that land includes earth's surface and resources

above and below the surface of the earth. It includes following natural

resources:-

i. On the surface (e.g. soil, agricultural land, etc.)

ii. Below the surface (e.g. mineral resources, rocks, ground water, etc.)

iii. Above the surface (e.g. climate, rain, space monitoring, etc.)

Peculiarities / Characteristics / Features of Land

1. Land is a free gift of nature

Land is a free gift of nature to mankind. It is not a man-made factor but is a

natural factor.

2. Land is a primary factor of production

Though all factors are required for production, land puts foundation for

production process. Starting point of production process is an acquisition of

land. So, it is a primary factor.

3. Land has perfectly inelastic supply

From society's point of view, supply of land is perfectly inelastic i.e. fixed in

quantity. Neither it can be increased nor decreased. Simply, you cannot change

size of the earth. But from individual point of view, its supply is relatively

elastic.

4. Land has grad ability

Land varies from region to region on the basis of fertility. Some land are more

fertile and some are not at all. So, fertility wise, grading of land is possible. So,

in this way, land has grad ability.

5. Land is a passive factor

Land itself doesn't produce anything alone. It is a passive factor. It needs help of

Labour, Capital, Entrepreneur, etc. Like labour and entrepreneur, it doesn't work

on its own initiative. So it is a passive factor.

6. Land may have diminishing returns

Here, return means quantity of crops. By using fertility of land with the help of

capital and labour continuously, returns gets diminished because of reduction in

fertility.

7. Land has a derived demand

Demand for agricultural goods is a direct demand and for producing such

goods, land is indirectly demanded. So, as a factor, land has a derived demand

from consumer's point of view.

8. Land has no social cost

Land is a gift of nature to society. It is already in existence. Land is no created

by society by putting any efforts and paying any price. So, for society, supply

price of land is zero.

But, because for the purchase of land or for its improvement, individual has to

pay certain price, so its supply price for individual is not zero.

9. Land is a indestructible factor

Land is durable and not perishable. It has a long life. No one can destroy the

land. The power of land is permanent and indestructible. Its fertility can be

destroyed as well as restored by human efforts.

10. Land is perfectly immobile

Mobility means ability to move. Movement of land from one place to another is

impossible. Thus, physically, land is perfectly immobile. But it has certain

occupational mobility because it can be used for variety of occupations, like

agricultural use or for construction of houses.

11. Land has a site or location value

Every piece of land has its certain site or location value. Such value depends

upon quality of its location. Land near to sources of raw materials and other

infrastructure facilities always enjoy high site value. Here accessibility of land

plays an important role.

12. Land earns rent as a reward for its use

Rent is a reward for the use of land. Classical economists like Ricardo

connected rent with fertility of land whereas modern economists like Marshall

and Jevons stated that land earns rent because of its scarcity.

2.What is Labour and Labourer?

Meaning

Usually, the term 'Labour' is used for 'worker'. But, technically, it is not correct. Labour and

Labourer (worker) are two different things.

Labour is an ability to work. Labour is a broad concept because it includes both physical and

mental labour (as per above picture). Labour is a primary or human factor of production. It

indicates human resource.

Labourer is a person who owns labour. So labourer means worker. It is a person engaged in

some work

Peculiarities / Features / Characteristics of Labour

1. Labour is inseparable from labourer

Labour cannot be separated from labourer. Worker sells their service and

doesn't sell themselves.

2. Labour is a perishable factor

Labour cannot be stored. Once the labour is lost, it cannot be made up.

Unemployed workers cannot store their labour for future employment.

3. Cost of producing a labour cannot be determined

It is easy to calculate production cost of a commodity produced in an industry.

But cost of producing a labour is a vague concept because it includes expenses

incurred by parents on education of their children and other expenses incurred

on them right from their birth date. It is impossible to estimate all such casts

accurately.

4. Labour is an active factor of production

Other factors like land, capital are passive, but labour is an active factor of

production. Being a human being, this factor has its own feelings, likes and

dislikes, thinking power, etc. We can achieve better quality and level of

production, if land and capital are employed properly in close association with

Labour. So without labour, we cannot imagine the smooth conduct of

production.

5. Labour is a heterogeneous factor

No two persons possess the same quality of labour. Skills and efficiency differs

from person to person. So, some workers are more efficient than others in the

same job.

6. Labour has imperfect mobility

Labour doesn't move easily from one occupation to another because of several

factors like family and cultural background, limited educational and technical

skills, lifestyle, housing and transport problems, language barrier, adaptability

to new environments, etc.

7. Labour supply is inelastic in general

Supply of labour depends upon many factors like size of population, age and

sex composition, desire to work, quality of education, attitude towards work,

etc. Thus, supply cannot be changed easily according to changes in demand.

Hence, in general, labour supply is inelastic. But for a particular industry, it may

be relatively elastic.

8. Labour is a human capital

Society makes investment in labour in the forms of education, health, training,

etc. This improves efficiency of labour. So, it is a human capital.

9. Trade unionism is a factor of Labour

Workers collectively form their organization which is known as trade union.

With this, they bargain with their employers and there by secure higher wages

and better working conditions. Such trade unionism is not possible in other

factors of production like land, else works only in case of labour (labourer).

10. Labour has a derived demand

Like other factors of production, labour has a derived / indirect demand. It

contributes to production process.

11. Labour is a Mean as well as an End

Labour is a mean of production in factory. But outside the factory premises

worker may be a consumer of that product. So, he might be an end user of that

commodity.

3.What is Capital? Meaning

Different subjects like Book-keeping, organization of commerce (O.C) and

secretarial practice (S.P) in commerce, economics, etc., indicate different

meaning of the term Capital.

In book-keeping, capital means amount invested by businessman in the

business.

In commerce subjects like O.C and S.P, capital means finance or company's

capital.

But, in economics, capital is that part of wealth which is used for production.

But here consider meaning of term capital from economic point of view

Relations of Capital

The word Capital is related with the following three terms, viz..

1. Wealth,

2. Money, and

3. Income.

The relation of capital with wealth, money and income is explained below:-

1. Relation with Wealth:-

Capital is that part of wealth which is used for production. So, wealth is a broad

concept and capital is a narrowed concept..

If a commodity is having features like scarcity, utility, externality and

transferability, it becomes wealth. A motor car has all above features, so it is a

wealth.

When wealth is used in production process, it becomes capital. Therefore, any

commodity as a wealth becomes the capital if it is used for production.

Thus, all capital is wealth but all wealth is not capital.

2. Relation with Money:-

Normally, capital means investment of money in business. But in economics

money becomes capital only when it is used to purchase real capital goods like

plant, machinery, etc. When money is used to purchase capital goods, it

becomes Money Capital.

But money in the hands of consumers to buy consumer goods or money hoarded

doesn't constitute capital. Money by itself is not a factor of production, but

when it acquires stock of real capital goods, it becomes a factor of production.

For production we need real capital and money capital but money capital

acquires real capital.

3. Relation with Income:-

Capital generates income. So, capital is a source and income is a result. E.g.

refrigerator is a capital for an ice-cream parlour owner. But, profits which he

gets out of his business is his income.

So, Capital is a FUND concept and Income is a FLOW concept.

Features of Capital

Types of Capital

4.What is Entrepreneur?

Meaning

The term 'Entrepreneur' has been derived from a French word 'Entreprendre' meaning to

undertake certain activities.

Factors of production viz. land, labour and capital are scattered at different

places. All these factors have to be assembled together. This work is done by

enterprise through entrepreneur. This is an 'Organization Function'.

Organization function is the work of bringing the required factors together and

making them work harmoniously.

Entrepreneur has to bear risks and uncertainties. For facing uncertainties he may

get profit or may incur loss. This is the 'Risk Bearing Function' and entrepreneur

is the risk bearer.

Qualities / Skills of an Entrepreneur

To be a successful and ideal entrepreneur, one should have certain qualities

or skills as given

1. Ability to organize

2. Professional approach

3. Risk bearer

4. Innovative

5. Decision Making.

6. Negotiation skills etc.

Question 2:

Write the essential characteristics of

a joint stock company.

A Joint Stock Company is a voluntary association of persons to carry on the

business. It is an association of persons who contribute money which is called

capital for some common purpose. These persons are members of the company.

The proportion of capital to which each member is entitled is his share and

every member holding such share is called shareholders and the capital of the

company is known as share capital. The Companies Act 1956 defines a joint

stock company as an artificial person created by law, having separate legal

entity from its owner with perpetual succession and a common seal.

Shareholders of Joint Stock Company have limited liability i.e. liability limited

by guarantee or shares. Shares of such company are easily transferable.

Characteristics of Joint Stock Company:

The analysis of above definitions reveals the following characteristics of a company:

1. Association of persons:

A company is a voluntary association of persons established for profit motive. A

private company must have at least two persons and the public limited company

must have at least seven persons to get it registered. The maximum number of

persons required for the registration in case of private company is fifty and in

case of public company there is no maximum limit.

2. Artificial person:

A company is an artificial person. It is created by law. Like that of the natural

person, it can own property, incur debts, file suits, and enter into contracts with

others under its own name. It can be sued and fined but cannot be imprisoned.

3. Separate legal entity:

A company being created under law has a separate entity from its members. Any

of its members can enter into contracts with others. A member cannot bind a

company by his acts or dealings with the third parties. The company can file a

suit against its members and its shareholders can also sue the company. Further,

a shareholder is not liable for the acts of the company even though he may be

holding all the shares of that company.

4. Limited liability:

The liability of the members or shareholders is limited to the extent of the value

of shares held or the amount guaranteed by them. The shareholders are not

personally liable for the debts of a company beyond that limit.

5. Transferability of shares:

The shares of a public limited company are freely transferable and can be

purchased and sold through the stock exchanges. A shareholder of a public

limited company can transfer his shares without the consent of other shareholders.

But there are certain restrictions on transferability of shares in case of private

limited company.

6. Common seal:

Since a company is an artificial person, it cannot put its signature on any

document. Therefore, it is statutory for every company to have a seal on which

the name of the company is engraved. Affixing of seal on any document signifies

the signature of the company. Of course two directors have to sign as witnesses

in such cases.

7. Separation of ownership from management:

The shareholders are the owners of the company. They are heterogeneous group

of people who are widely scattered throughout the country and abroad. The

shareholders elect their representatives called directors to manage the company.

Thus, the company is managed by directors rather than the shareholders. This

results in separation of ownership from management.

8. Perpetual succession:

The company enjoys a continuous existence. Its existence is not affected by death,

lunacy or insolvency of its shareholders or directors as the case in partnership or

sole proprietorship. The company can only be dissolved by the operation of law.

9. Investment facilities:

A joint stock company raises its funds through issue of shares to general public.

Due to the small denomination of the shares, the company provides investment

opportunities to all sections of people who want to put their surplus money in the

company's share.

10. Accountability:

A joint stock company has to function as per the provisions of the Companies

Act. The accounts are to be audited by qualified auditors. Such accounts and

exports are published for the information of all stakeholders. Regular and timely

reports are to be submitted to the Government.

11. Restricted action:

A company cannot go beyond the powers mentioned in the abject clause of the

Memorandum of Association. Therefore, its action is limited.