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Factors of Production: Capital and Labour

Factors of production are resources used by firms as inputs for a good or service to be produced. Factors of production are as follows: capital, labour, and natural resources.

In economic theory, the term "capital" refers to goods and money used to produce more goods and money. Classifications of capital vary with the pur­pose of the classification. The most general distinction is the one made be­tween physical, financial, and human capital.

Physical capital is land, buildings, equipment, raw materials. Bonds, stocks, available bank balances are included in the financial capital. They both make a great contribution to production.

To group capital into fixed capital and circulating capital is common prac­tice1. The former refers to means of production such as land, buildings, ma­chinery and various equipment. They are durable, that is, they participate in the production process over several years. Circulating capital includes both non-renewable goods, such as raw materials and fuel, and the funds required to pay wages and other claims against2 the enterprise. Non-renewable goods are used up in one production cycle and their value is fully transferred to the final product.

Human capital is knowledge that contributes "know-how" to production. It is increased by research and disseminated through education. Investment in human capital results in new, technically improved, products and produc­tion processes which improve economic efficiency. Like physical capital, hu­man capital is important enough to be an indicator of economic development of a nation.

It is common, in economics, to understand labour as an effort needed to satisfy human needs. It is one of the three leading elements of production. Labour has a variety of functions: production of raw materials, manufactur­ing of final products, transferring things from one place to another, manage­ment of production, and services like the ones rendered by physicians and teachers.

One can classify labour into productive and unproductive. The former produces physical objects having utility. The latter is useful but does not pro­duce material wealth. Labour of the musician is an example.

Unlike other factors of production, for example capital, when workers are employed, their efficiency can vary greatly with organization of work and their motivation.

Demand for labour is influenced by the demand for goods produced by workers, the proportion of wages in total production costs, etc. The supply of labour depends upon the size of population, geographic mobility, skills, edu­cation level (human capital), etc. Workers supply labour either individually or through trade unions. If demand for and supply of labour are not in equilib­rium, there is unemployment. The rate of unemployment is a percentage of the total labour force without a job. It is desirable for an economy to have the lowest possible unemployment rate and to achieve higher employment as nei­ther full use of resources nor maximum level of output can be achieved in an economy having unemployment.

Factors of production are combined together in different proportions in order to produce output. It is assumed in economics that one should choose the combination of factors which minimizes the cost of production and in­creases profits.

The third factor of production, natural resources, poses too many economic problems3 to be discussed here. We will analyze them in the following unit.


Задание 2. Выпишите из каждого предложения текста грамматическую основу (подлежащее+ сказуемое), определите видовременную форму глагола и залог, определите начальную форму глагола.


Задание 3. Задайте вопросы к первому предложению:

· общий

· специальный

· к подлежащему

· альтернативный




Задание 4. Выберите подходящее по смыслу слово из предлагаемых в скобках вариантов и переведите пред­ложения на русский язык .

1. {Like/ Unlike) physical capital, human capital is expensive.

2. A man's budget constraint is determined by the total amount of time {follow­ing / available) over a given period such as a day, a month, a year.

3. Individuals can {either/neither) spend their income on consumption {or / nor) save it.

4. A person has an income which allows him to consume {efficient/ vari­ous) goods and services and live in a particular neighbourhood (район).

5. In labour markets many aspects are regulated: paid holidays, the length of working day and week and other aspects of the {employment / contri­bution) relationship.

6. Changing policies {require/vary with) constant updating (обновление) of statistical systems.


Задание 5. Найдите в тексте неличные формы глаголов (герундий, причастие настоящего времени, причастие прошедшего времени, отглагольное существительное, инфинитив, сложное подлежащее, сложное дополнение) и выпишите их.





1. Прочитайте и переведите письменно текст на русский язык.