Factor of Production & Classification of the Factors

Factor of Production

L. M. Fraser, defining factors of production says;
“Factors of production are the name which is given to the original resources of production.” 
Factor of production, in fact, is the group of element of production and the single number of this group is termed as ‘unit’ of that particular resources. The word ‘Factor’ used to be applied to these elements of production by the classical economists but the modern expert of Economics calls them ‘Anonymous productive Services”.

Factor of Production & Classification of the Factors

Economics Important Questions With Answers

Classification of the Factors

Classical division of these factors of production is as under:

1. Land
2. Labor 
3. Capital 
4. Organization / Enterprise 

The word land in economics is used in different sense as Marshall defined:

“Land refers to all minerals and forces which have been provided by the nature for the benefits  of man whether they are found on the surface, under the surface even in the space.”

Labour Marshall defined:
 “Every mental and manual work which is done partly or wholly,  apart from the personal pleasure, for getting money or kind in return is termed as labor in Economics.” 

Efficiency of Labour
In very simple words efficiency of labor mean productive capacity. The capacity of a worker to  work more or less in a given period of time is called his efficiency. Marshal defines efficiency as

“At a particular time the ability of a laborer to do better or much better and more work is deemed as the efficiency of labor.”

Efficiency of labor is a comparative concept. It compares the two or more workers. For example if a carpenter can make three chairs a day and another can make only one chair a day then this Implies that the efficiency of labor of the first worker is three times more than of the second. All the labors performing the same work turnout with different qualities in the same time depending upon their efficiency .All the labors may not give similar output on a given period of time due to a difference their efficiency. Generally it depends upon the following factors:
• Personal qualities of laborer.

• Atmosphere of a country

• Atmosphere of the working place

• Ability of the organizer

• Miscellaneous.

Division of Labor

The splitting of the production process on to its components process is known as division of labor. Each process is entrusted into a separate set of workers so that all of them co-operate to produce a single product. Division of labor is the result of specialization. Different workers who are assigned specific operation are specialized and skilled in their work. Division of labor today is an important characteristic of the system of production. Infect there is hardly any producing unit of respectable size which does not organize production on the basis of division of labor.

Kinds of Division of Labor

Following are the types of the division of labor:

1. Simple Division of Labor:

It means the division of society in to major sections each specialized in occupations e.g. carpenters weaver’s blacksmith etc.

2. Complex Division of Labor:

In this case no groups of workers make a complete article. Instead the making of the article is split up into number of process and sub-process and each is carried out by a separate group of people.

3. Irrational or Geographical Division of Labor:

This form refers to certain localities cities or towns specializing in the production of a particular commodity. It is also called localization of industries or regional division.

4. Occupational Division of Labor:

It refers to professional division of labor i.e. each and every person be engaged in different office and job. For example someone works as a clerk, other as a manager, a lecturer in a college etc.

Mobility of Labor


The capacity of a worker to move from one place to another is called mobility of labour. E.g. the movement of villagers towards cities for sake of employment, shifting a worker engaged in production to distribution.

Kinds of Mobility of Labor

Mobility of labor may take any one of the following kinds:

1. Geographical Mobility of Labor

The movement of a worker from one locality to another in search of employment is called geographical mobility of labor. E.g. if a worker has moved to Dubai in search of employment it will be called geographical mobility.

Geographical mobility is of two types:

(i) National Mobility

If the movement of labor is within the national boundaries of the country i.e. within the country it will be called national mobility. 

(ii) International Mobility 
When the movement of labor takes place across international boundaries i.e. outside the country such kind of mobility is called international mobility.

2. Occupational Mobility
The change of profession or occupation for the sake of getting better financial reward is called occupational mobility of labor. It is also called professional mobility e.g. if a labor changes his profession and starts a hotel it will be deemed as his professional or occupational mobility. It may be further classified as:

3. Horizontal Mobility of Labour
It is also known as parallel mobility of labour. It means that a worker moves from one employment to another without any change in his grade or salary e.g. a college clerk is transferred to the university office with the same salary and facilities.

4. Vertical Mobility of Labor
It refers to that mobility in which a person is transferred from a lower grade to a higher with an increase in his salary and other facilities e.g. an asset marketing manager is promoted as the marketing manager.

Different economists have defined capital differently as under:

According to Alfred Marshall:

“Capital is the goods which are used as factors of production.”

According to Professor Thomson: 
“The wealth of people and the society, except land, is capital which is used as helper in producing further wealth.”


A business (also known as enterprise or firm) is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit or state-owned. A business owned by multiple individuals may be referred to as a company, although that term also has a more precise meaning.

check this out 
Revenue Vs Average Revenue

Marginal Productivity Theory:

(A) MPP and MRP: Just as demand and supply forces together determine prices and quantities of goods exchanged in the product market similar rules operate in the factor market. If the labor market is assumed to be competitive then the rate of wages will be fixed and uniform. At such a competitive wage rate a firm has to decide how many workers it can profitably employ. In other words, a firm has to determine its own demand for labor. The productive contribution of an additional or marginal worker governs such a demand for labor since labor is a productive service. A firm is guided in this respect by the marginal productivity rule. The most important principle determining demand for labor is called Marginal Productivity Theory. It attempts to relate marginal contribution to the output produced and the rate of wages required to be paid to the marginal worker. Wages are paid in cash or money units while the product is measured in physical units. To make the comparison convenient Marginal Physical Product (MPP) is converted into Marginal Revenue Product (MRP). For this purpose, MRP is multiplied by the marginal revenue earned by a firm in the curve. If a firm is operating under a competitive product market then the price or the average revenue and marginal revenue values are identical. MRP is Price ́ MPP under competition. This same value is MR ́ MPP under imperfect markets.

Marginal Productivity Theory
MRP = MPP ́ Price ® Competition

MRP = MPP ́ MR ® Monopoly, Oligopoly etc. 

(B) A Firm’s Demand Curve: Let us begin with the simple case of a competitive market. There is competition both in the labor market and the product market. Price of the product is assumed to be $5. The firm has to determine its demand under the following productivity conditions:

Marginal Productivity Theory Graph

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