In other words, is the place where firms sell the goods and services they have produced, receiving a revenue paid by households. The market for goods and services is the place where households spend their money buying goods and services produced by firms. market for factors of production (such as labour or capital), where firms purchase factors of production from households in exchange for money. market for goods and services, where households purchase goods and services from firms in exchange for money An entrepreneur is a change agent, who brings change in the firm’s process, to compete effectively in the business environment by adopting modern techniques of production.įactors of production, plays a crucial role in our lives, as even a small pin cannot be created if any of the factors of production are missing or not actively participating.The circular-flow diagram (or circular-flow model) is a graphical representation of the flows of goods and money between two distinct parts of the economy:.He/She has the ability to embody innovation into product and services.He/She makes plans and strategies for the future moves and actions, as well as takes all the decisions for the firm quickly and logically. An entrepreneur is ready to bear the risks and uncertainties associated with the process of production.He/She is the one who plans, organizes, coordinates, controls and allocates the other means of production.Capital is durable in nature, it is long lasting, but depreciates over time.Īn entrepreneur is the most important factor of production, without which the production process cannot be initiated as the rest of the factors are disorganized or dispersed at various locations and it is the entrepreneur who takes charge of arranging and assembling them, to start the process of production.Īn entrepreneur performs the role of an innovator, manager, organizer, leader, risk-taker, and coordinator.The supply of capital can be increased or decreased according to demand.It has an opportunity cost, as it can be put to alternative uses.It is mobile, as it can easily be transferred from one place to another.It is a secondary and artificial factor of production.It is not a gift of nature, as land, instead is a man-made factor of production.In better words, capital is not an original and principal means of production, rather it is a produced one. which are used for further production of wealth. Further, the supply is based on a number of factors like the size of the population, desire to work, attitude towards work, age and sex composition, etc.Ĭapital can be understood as all the human creations, such as tools, plant and machinery, equipment, money, etc. Labour supply can be changed, but not instantly and so the supply is inelastic.Labour cannot be stored and due to this reason, they get ready to work at the wages decided by the employer. Labour’s bargaining ability is not very strong and convincing.It is mobile in nature, as labourers can move from one place to another or from one firm to another to find suitable work for them.the efficiency of labour differs from one person to another, which depends on his skills, competency, productivity, etc. Labour is heterogeneous in nature, i.e.It is an active factor of production, whose participation is important for other factors such as land and capital to produce.It is perishable, meaning that if labour has not worked on a particular day, it cannot be fully recovered by overtime working on some other day.Labour is directly associated with human efforts and due to this reason fair wages, good treatment, work environment and working conditions are necessary for labourers.Labour refers to the human resource who exerts physical or mental efforts, to produce the goods or services for specific consideration, i.e. It is heterogeneous in that no two surfaces of land can be exactly similar as they vary in quality and condition.The land is immobile as it cannot be shifted from one place to another, as well as it is a passive factor of production, as it cannot produce anything on its own.It is ever-lasting, and it is indestructible in nature, as well as it can be put to various uses.it cannot be increased with an increase in demand. This is what makes it different from the rest of the factors of production, i.e. All the natural resources are limited in supply, and so does the land.The land is a nature’s gift to us, which does not need any effort of human beings to create it or avail it for the purpose of production.
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