Production is creation or addition of value or wealth. It consists not only of goods but also of services. In other words production is creation of utility having exchange value. The act of production is not complete till the commodity reaches the hands of the consumers. Several factors determine production i.e. natural factors, political factors, technical process, and development of credit, banking, transport & communication and character of people. The production of wealth requires the co-operation of several factors of production. These factors are known as inputs in the process of production i.e. land, labour, capital & organisation. What they produce is the output.

1. Land: By land we not merely mean soil but everything on above below the surface of the earth given to us by nature. Reward to land is known as rent.

2. Labour: Any activity, mental or manual undertaken to earn an income is labour. Reward to labour is wages and salaries.

3. Capital: It is the produced means of production. Reward to capital is interest.

4. Organization or enterprise: it is the work of bringing land, labour and capital together and making them work harmoniously and in the process paying each. It includes organising business and taking risks. Reward to organisation is profit.

According to some economists, there are only two factors of production, land and labour. others say that it is not necessary to distinguish between labour and enterprise. However enterprise performs certain functions like bearing uncertainties and risks. However in spite of this different news the traditional fourfold classification is still accepted.

Relative importance of different factors of production:

It is difficult to say which factor of production is important and which is not. All of them seem to be equally necessary and important and each has a special function to perform.

Any commodity used can be ultimately traced to land. land makes available to us gifts of nature provides space for economic operations. Human life without land is impossible to imagine.

By itself however land can produce a little. To increase production man has to work on land. it is through man’s efforts that production has increased and diversified. labour therefore, is equally important.

Unaided by tools man cannot produce much. A community depending on land and its materials alone lives in poverty alone forever.It is capital which fulfils the rear need. Today’s production which with mechanisation is the capital intensive way of production. Capital increases efficiency in production. Therefore, it is important.

The organisor also plays a very important role in production. He is responsible for setting the production machinery in motion. it is under his leadership that the other factors of production can be coordinated.

All factors are necessary for modern production but they have been equally important always. The importance of a particular factor depends largely on the stage of economic development in the hunting and pastoral stages. Land was all important. In the agricultural stage, labour disputed with land for domination but not wholly successfully. Today capital and enterprise seem to be more important to the extent that they have eclipsed the other factors.

The relative importance of factors varies from industry to industry.

Mobility of factors of production:

All countries do not possess the factors of production in different quantities and proportion i.e. factors of production are unevenly distributed. Most of the factors of production in most cases have alternative uses. A farmer may work as a trader or factory worker simultaneously or he may have some business in another place. This ability of factors of production to move from one place to another is known as mobility of labour. There are two types of mobilities.

1. Geographical mobility: i.e. the factor of production can move from one place to another. This mobility varies from factor to factor e.g. Capital has greater mobility than labour.

2. Occupational mobility: i.e. the movement of production from one occupation to another. There are two types of occupational mobility.

a. Horizontal mobility: Factor moves from one occupation to another without change of the nature of work and status of worker. e.g. a manager in a government firm becomes a manager in a printing firm.

b. Vertical mobility: Change from one occupation to another brings about the change in the nature of work and status of the worker.

e.g. an accountant becomes a chief accountant in another firm.

A schoolteacher becomes a principal in another school.

Vertical mobility is more difficult than horizontal mobility. It requires efficiency, experience, improvement in production of worker.

Geographical mobility and Horizontal mobility are not exclusive. They may co-exist in relation to same factors e.g. a professor may become an

Determinants of mobility:

1. Earning a better income: e.g. a farmer cultivating wheat instead of bajra.

2. Cost of conversion- eg A worker has to consider cost of transport, accommodation available, climate, price, etc.

Factors that move freely are said to have mobility. Mobility influences production of goods and services. Demand for goods and services do not remain constant. It may increase or decrease. Therefore, Production has to be increased or decreased accordingly. Mobility of factors of production facilitates increase or decrease of production without causing a substantial increase or decrease in cost of production. Because factors move freely and, therefore, supply can be adjusted to change in demand without affecting price. Mobility of factors of production especially of labour helps to bring about equality between demand and supply of labour. Labour moves to areas where demand for it is high and wages are high. Workers move to areas where industries are expanding in order to avoid unemployment.

Posted in General Economics