Lesson Objectives:
At the end of the lesson, students should be able to:
Identify and explain what Influences demand for factors of
production - include demand for the product, the price of
different factors of production, their availability and their
productivity.
Labour-intensive and capital-intensive production - The reasons
for adopting the different forms of production and their
advantages and disadvantages.
Production and productivity - The difference between, and
influences on, production and productivity.
• ‘Class Activities’ and ‘Multiple Choice Questions’ with
Answers.
What determines the demand for
factors of production?
1. consumers demand - for the product they are used
to produce.
2. factor market prices - of different factors of production,
3. factor availability - will affect the prices and quantity
supplied of different factors of production.
4. factor productivity - profit driven firms will employ
resources only if it is profitable to do so.
The ‘Production process’ applies to both
manufacturing, and service industries.
Production is the making of tangible goods, such as
computers, cars, etc. and the provision of intangible
services, such as banking, teaching, etc. It aims to
add value to the bought in inputs of the business so
that the outputs can be sold with profits.
The Transformation Process
Forms of Production
1. Labour-intensive production
Uses far more labour inputs than capital inputs. Examples are the services
industries; hospitals, hotels, restaurants, supermarkets, personalized
services, and small product markets.
Advantages:
1. Consumers pay premium prices for handmade and customised
products.
2. Labour costs are often low.
3. Lower risks of losses - no machine breakdowns or power cuts.
4. Workers are proud of their work, and produce better quality products.
5. More flexible use of labour.
6. It is easier to manage, and change product quality .
Disadvantages
1. Wages and other employment costs can be high.
2. Scarce skilled labour demanding high wages.
3. Industrial dispute with trade unions can disrupt
production.
4. Workers may need retraining in new skills.
5. Higher Unit costs of products than in the capital –
intensive method.
6. Suitable only for small scale production
2. Capital-intensive production
uses far more capital inputs than labour. Where both
methods of production are applicable to a product, firms
will choose the most efficiency and productive method.
Advantages
1. Can mass produce products with large market size.
2. Lower unit cost of production.
3. Lower labour input costs
4. Lesser risk of disruption to the production process
5. Automated production is possible 24/7.
6. Products are standardised and of better quality.
Disadvantages
1. High costs of equipment and maintenance.
2. Costly staff training and retraining
3. Machines can become obsolete with technical progress
and changing market conditions.
4. Breakdowns and power cuts can stop production.
5. Not suitable for personalized service industries.
Reasons for adopting the different forms of production
1. Factor substitution; ease with which labour can be
replaced with machines. This depends on product type
and the production process used - hair saloons!
2. Products market sizes; will use labourintensive method for small markets and Capitalintensive technique for mass marke tproducts.
3. Customised products; use labour-intensive method.
products that can be standardized require capitalintensive. technique.
Production
Is a measure of the quantity of output that a firm produces in a given
period of time.
Productivity
Measures the rate or how efficiently, inputs are converted into outputs.
If 10 units of inputs produce 20 instead of 10 units of output per week,
it is twice as productive. Common measures of productivity are:
1. In 2013, the Singapore Government was concerned that its economy might
experience a recession. It was introducing a range of supply-side policy measures
to increase productivity, avoid a recession and achieve its other aims for the
economy. It was also trying to reduce the international value of the Singapore
dollar.
(a) Identify and explain the difference between labour-intensive and capitalintensive production.
[4]
(b) Analyse how supply-side policy measures could increase productivity.
[6]
2. There are many large firms in most economies, but this does not mean that all
small firms will become large.
(a) Explain two reasons why production by a firm might be changed from capitalintensive to labour-intensive.
[5]
1 What is most likely to reduce the supply of factors of production
in an economy?
A increasing the age of retirement
B introducing new methods of irrigation
C lowering the cost of borrowing from banks
D raising the rate of tax on profits
2 Nolwazi lived in a rural area in Botswana and made baskets to sell
to the tourists. The local government gave her a loan to buy a car
to take the baskets to the city market.
Which factor of production increased?
A capital
B enterprise
C labour
D land
3 What will make an industry capital-intensive?
A employing many unskilled workers
B manufacturing expensive products
C occupying cheap land
D using expensive equipment and a small labour force
4 When is a firm considered more capital-intensive than
another firm?
A when it has a lower ratio of workers to machines than
the other firm
B when it has fewer workers than the other firm
C when it has higher variable costs than the other firm
D when it has more machines than the other firm
5 The world’s open-cast mining of mineral ores is dominated
by a few multinational companies which employ relatively
few workers.
What does this indicate?
A Production is capital-intensive.
B Productivity of labour is low.
C The market is perfectly competitive.
D There is a monopoly of world production.
1 (a) See slide nos. 4 and 6.
(b) Up to 4 marks for any one policy measure analysed:
• improved education/training (1) may raise workers’ skills (1) increase
output per worker hour (1) • privatisation (1) may increase competitive
pressure on firms to keep costs low (1) encourage more investment (1)
increase output per factor hour (1)
• reforming trade unions (1) may reduce restrictive practices (1) this may
allow firms to use their workers more efficiently (1) increase output per
worker hour (1) • cutting corporation tax (1) may increase profit (1) increase
investment (1) increase output per factor hour (1)
• giving subsidies (1) to encourage firms to invest in advanced technology,
engage in research and development and/or train workers (1)
2 (a) 1 mark for definition of capital-intensive and labour-intensive
production.
Up to 2 marks: labour has become relatively less expensive (1); this could
be because of an increase in supply forcing wages down (1).
Up to 2 marks: the company could be moving away from mass production
(1) towards more specialised production (1).
Up to 2 marks: the capital equipment could have become less reliable (1)
and, therefore, more expensive to maintain (1).
Up to 2 marks: the power of the trade unions could be less than it was in
the past (1), making it more difficult for them to have a significant effect on
wages (1).
Up to 2 marks: disposal of capital equipment (1) due to financial problems
(1).