Labor land taxes entrepreneurial abilities capital. General characteristics of production factors (labor, capital, land, entrepreneurship). Production function analysis
Resources (factors of production), their characteristics and classifications. Labor, land, capital, entrepreneurial ability
- Part 1
In the most general understanding, resources (from the French ressource - auxiliary means) are funds, values, reserves, opportunities, sources of funds and income. Usually, economic resources are highlighted - everything that is necessary for the production process.
It should be noted that along with the concept of “resources of production” in the economic literature the concept of “factors of production” is often used as a synonym. A factor (from the Latin “factor” - doing, producing) is the cause, the driving force of any process, phenomenon, determining its character or its individual features.
In fact, what they have in common is that both resources and factors are the same natural and social forces with the help of which production is carried out. The difference between them is that resources include those natural and social forces that can be involved in production, and factors include resources actually involved in this process. Based on this, the concept of “resources” is broader than “factors of production”.
Today in Western economic theory It is customary to divide factors of production into three groups.
- Land as a factor of production is a natural resource and includes everything used in production process benefits given by nature (land, water, minerals, etc.).
- Capital is everything that can generate income, or resources created by people to produce goods and services. This approach to this category synthesizes the points of view of Western economists on capital (for example, A. Smith interpreted capital as part of the stock used in material production, D. Ricardo - as a means of production, J. Robinson considered money as capital). In Marxist political economy, capital was understood differently - primarily as a value that brings surplus value (“self-increasing value”), as a determining economic relation, and a relation of exploitation.
- Labor is a purposeful activity of people that requires the application of mental and physical effort, during which they transform objects of nature to satisfy their needs. Strictly speaking, the “labor” factor includes entrepreneurial skills, which are sometimes considered as a separate factor of production. The fact is that land, labor and capital by themselves cannot create anything until they are united in a certain proportion by an entrepreneur, an organizer of production. It is for this reason that the activities of entrepreneurs and their abilities (entrepreneurship) are often considered as an independent factor of production.
The third factor of production is land. One of the important characteristics of land is its limited area. A person is not able to change its size at will; it is impossible to “produce” the earth.
The use of a certain piece of land also represents the initial condition of everything that a person can do.
It must be remembered that the term “land” is used in a broad sense. It covers all the utilities that are given by nature in a certain volume and over the supply of which man has no control, be it the land itself, water resources or minerals.
Certain areas of the earth's surface contribute to a certain production activities humans: for example, seas and rivers are used for fishing; areas rich in minerals are necessary for the mining industry; some part of the land is used for construction (though in this case the choice is made not by nature, but by search) But still, when talking about land, first of all, we mean its use in agriculture.
For a farmer, a piece of land serves as a means to grow certain crops. The soil must have fertility, which is determined by its mechanical and chemical properties. By mechanical properties it should be soft enough, at the same time it should not allow water to pass through too freely, but very dense, clayey soil is not suitable for growing plants. By chemical composition the soil must contain inorganic elements in a form in which they are quite easily absorbed by plants. A person is able, within certain limits, to change the condition of the soil, using mechanical cultivation, introducing organic and chemical fertilizers. Thus, the properties of the earth can be divided into those initially given, that is, natural and artificially created. However, it is the first group of properties, which includes the location of the site and climatic conditions, that is the main one, since it is these properties that give special significance to land ownership and determine the specific nature of the income of land owners.
So, a person can influence the fertility of the earth in a certain way, but such influence is not unlimited. Sooner or later the time will come when the additional return obtained from the additional application of labor and capital to the land will be so reduced that it will no longer reward a person for their application. We come to an important law concerning land - the law of diminishing returns (meaning returns in quantitative terms), or diminishing returns.
The law of diminishing returns can be formulated as follows: “Each increment of capital and labor invested in cultivating the land generates, in general, a proportionally smaller increase in the amount of product obtained, unless the specified increment coincides in time with the improvement of agricultural technology” (Marshall A. Principles of Economic Science. T 1. M., 199* P. 220).
It is quite natural that on insufficiently cultivated land this tendency is not noticeable at first; it begins to act only after the maximum level of return has been reached. Diminishing returns can be temporarily halted by improvements in agricultural technology. But if the demand for the products of the land increases indefinitely, the tendency towards diminishing returns will become irresistible.
The law of diminishing returns applies to land only because, unlike other factors of production, it has one important property- limitations The land can be cultivated more intensively, but the area of cultivated land cannot be increased indefinitely, since the stock of land suitable for cultivation is constant.
Does the law of diminishing returns apply to other natural goods grouped under the term “land”? Let's take for example a mine where coal is mined. Indeed, over time, people are faced with increasing problems as they try to extract more minerals. All other things being equal, the continuous application of labor and capital to the mine will lead to a decrease in coal production. However, when we talk about the use of land in agriculture, the output in the form of agricultural products represents the renewable income, and the coal produced from the mine represents the extraction of accumulated treasures from it. After all, coal is part of the mine itself. Let's imagine that one person can pump water out of a tank in thirty days, but thirty people will do this work in one day, and when the tank is empty, no one and nothing will be able to pump the water out of it. Likewise, there is nothing to take from an empty mine. Therefore, the law of diminishing returns does not apply to mining.
Entrepreneurship as a productive factor
The phenomenon of entrepreneurship acts as an integral attribute of a market economy. Although the history of entrepreneurship goes back centuries, its modern understanding developed during the period of formation and development of capitalism.
In economic theory, the concept of “entrepreneur” was used in the 18th century. and was often associated with the concept of owner. At its origins was the English ECONOMIST Cantillon, who first introduced the term “entrepreneur” into economic theory. According to Cantillon, an entrepreneur is a person with an uncertain, non-fixed income (peasant, artisan, merchant, robber, beggar, etc.). He buys other people's goods at a known price, and will sell his own at a price still unknown to him. It follows that risk is the main distinguishing feature entrepreneur, and his main economic function is to bring supply into line with demand for various commodity markets. Smith also characterized an entrepreneur as an owner who takes economic risks in order to implement some kind of commercial idea and make a profit. He plans and organizes production, manages its results, etc.
A similar view on the function of an entrepreneur in a market economy was held by a major French economist from the late 18th century to the beginning. XIX centuries J.-B. Say, who characterized him as a person who undertakes to produce some product at his own expense and risk and for his own benefit. He emphasized the active role of the entrepreneur as an economic agent, combining factors of production as an intermediary, owner of knowledge and experience.
Say described in some detail the specific properties of an entrepreneur and the nature of his income, part of which is a payment for his rare entrepreneurial abilities.
A major contribution to the development of the theory of entrepreneurship was made by the German economist W. Sombart and the Austrian economist J. Schumpeter. An entrepreneur according to Sombart is a “conqueror” (willingness to take risks, spiritual freedom, wealth of ideas, will and perseverance), an “organizer” (the ability to connect many people for collaboration) and “merchant” (the ability to convince people to buy their goods, arouse their interest, and gain trust). Describing the goals of an entrepreneur, Sombart identifies as the main one the desire for prosperity and growth of his business, and the subordinate - profit growth, since without it prosperity is impossible.
J. Schumpeter calls an entrepreneur a person who undertakes the implementation of new combinations of factors of production and thereby ensures economic development. At the same time, Schumpeter believed that an entrepreneur is not necessarily the owner of production, an individual capitalist - he can also be the manager of a bank or joint-stock company.
Essentially, the unification of the owner and the entrepreneur in one person began to collapse precisely during the period of the emergence of credit. Any commercial bank is not the owner of all the capital that it puts into circulation. As a rule, its ownership extends to the authorized capital, which may be a relatively small amount.
The most visible separation of entrepreneurship from property is found in joint-stock companies. In a joint-stock, corporate economy, property as a legal fact loses its administrative prerogatives. Power in production moves from property to organization, and the role of property becomes more and more passive. Instead of the actual physical items with which the concept of ownership has traditionally been associated, the shareholder owns only a piece of cue, a title to the property. He, the owner of the shares, has very conditional control over the entrepreneurs themselves. However, he is not responsible for the results of the corporation's activities. Managers bear this responsibility. Thus, the development of credit relations and the transition of national wealth from the form of individual private property to the form of corporate ownership entails the separation of property from the disposal of entrepreneurship.
There is no strict connection between the entrepreneur and the owner; entrepreneurship, at its core, is not a function of the owner alone; persons who are directly subjects of property rights can participate in it.
To characterize entrepreneurship as economic category the central problem is the establishment of its subjects and objects. Business entities can be primarily private individuals (organizers of individual, family, and larger production). The activities of such entrepreneurs are carried out both on the basis of their own labor and with the involvement of hired labor. Entrepreneurial activity can also be carried out by a group of persons connected by contractual relations and economic interests. Subjects of collective entrepreneurship undertake joint stock companies, rental collectives, cooperatives, etc. In some cases, the state represented by its relevant bodies is also considered a business entity. Thus, there are three forms in market tick entrepreneurial activity state, collective, private, each of which finds its own “niches” in the economic system.
The object of entrepreneurship is the implementation of the most effective combination of factors of production in order to maximize income. All kinds of new ways of combining economic resources, according to J. Schumpeter, are the main business of an entrepreneur and distinguish him from an ordinary business executive. Entrepreneurs combine resources to produce a new good unknown to consumers; discovery of new methods of production (technologies) and commercial use of existing goods; development of a new sales market; development of a new source of raw materials; carrying out reorganization in the industry to create their own monopoly or undermine someone else's.
For entrepreneurship as a method of running an economy, the main condition is the autonomy and independence of business entities, the presence of a certain set of freedoms and rights - to choose the type of business activity, to formulate a production program, to select sources of financing, access to resources, to sell products, to establish price, disposal of profits, etc. The independence of the entrepreneur should be understood in the sense that there is no governing body above him, indicating what to produce, how much to spend, to whom to sell and at what price, etc. But the entrepreneur is always in control depending on the market, on the dynamics of supply and demand, on the price level, i.e. on the existing system of commodity-money relations.
The second condition of entrepreneurship is responsibility for the decisions made, their consequences and the associated risk. Risk is always associated with uncertainty and unpredictability. Even the most careful calculation and forecast cannot eliminate the factor of unpredictability; it is a constant companion of entrepreneurial activity.
The third characteristic of entrepreneurship is achievement orientation. commercial success, the desire to increase profits. But such an attitude is not self-sufficient in modern business. The activities of many business structures go beyond purely economic tasks; they take part in solving social problems societies donate their funds for the development of culture, education, healthcare, protection environment etc.
Entrepreneurship as a special type of economic thinking is characterized by a set of original views and approaches to decision making, which are implemented in practical activities. The personality of the entrepreneur plays a central role here. Entrepreneurship is not an occupation, but a mindset and a quality of nature. To be an entrepreneur means not to do what others do, J. Schumpeter believed. “You need to have a special imagination, the gift of foresight, and constantly resist the pressure of routine. You need to be able to find something new and use its possibilities. You need to be able to take risks, overcome fear and act not depending on the processes taking place - to determine these processes yourself.”
An entrepreneur in his activities is driven by the will to win, the desire to fight, and the special creative nature of his work.
As for the intelligence of an entrepreneur, according to Schumpeter, it is very limited and selective; it is aimed at a very narrow range of phenomena that the entrepreneur studies thoroughly. Limited horizons do not allow an entrepreneur to compare many different options for achieving his goal and indulge in long hesitation.
The main factors of production of a firm include labor, land and capital. The meaning of the term "earth" is obvious. The definition of capital is more complex.
Capital - equipment, buildings and structures used to produce goods and services.
Economists use the term "capital" to refer to the equipment, buildings, and structures used in production. Capital is goods accumulated, produced in the past and used in the present to produce new products and services. The capital of the company in question consists of: ladders used for picking tangerines; trucks transporting crops; buildings in which tangerines are stored; tangerine trees.
Equilibrium in land and capital markets
The supply and demand of land and capital determine the remuneration of land owners and capital owners. The demand for each of these factors, like the demand for labor, depends on the value of its marginal product.
Purchase price and rental price. Before determining the income of the owners of land and capital used in production, it is necessary to distinguish between the concepts of purchase price and rent price of these factors of production.
Rent price, or rent, is the amount of money that someone pays for the use of factors of production over a specified period of time. This distinction is fundamentally important because these prices are determined by slightly different economic forces.
Having defined the concepts of rent price and purchase price, we can consider the theories of supply and demand in the land and capital markets. These theories are similar to the theory of labor demand, since wages are essentially the price of labor rent. Consequently, the provisions of the labor market theory are also valid for the theories of land and capital markets.
In Fig. 6.4 and 6.5, the price of land rent and the price of capital rent are determined by supply and demand.
Rice. 6.5. Land market
Rice. 6.6. Capital market
The demand for land and capital is determined in the same way as the demand for labor. That is, when a mandarin orange firm decides to rent land and stairs, it follows the same logic by which it decides to hire workers. In both the case of land and capital, the firm increases the quantity of the factor of production used until the value of the marginal product of the factor equals the price of the rent of the factor. Thus, the demand curve for each factor of production reflects its marginal productivity.
Income of factors of production. It is now possible to explain the proportions of the distribution of income between wage earners, landowners and capital owners. As long as firms using factors of production remain competitive and maximize profits, the rent price of each factor is equal to the value of its marginal product.
The income that labor, land and capital bring is equal to the value of their marginal contribution to the process of production of goods.
The purchase price of land or capital is the amount of money that a certain entity pays in order to obtain ownership for an indefinite period of specific factors of production. The rent price and the purchase price are obviously related. Buyers are willing to pay a large sum of money to purchase a piece of land or some capital if they are confident of receiving large rental income in the future. Equilibrium rental income is always (at any time) equal to the value of the marginal product of the factor of production. Consequently, the equilibrium purchase price of land or capital depends both on the current value of their marginal product and on the value of the marginal product expected in the future.
Relationship between factors of production
The price of using a factor of production - labor, land or capital is equal to the value of the marginal product of this factor. The marginal cost of any factor product, in turn, depends on the quantity available. Due to diminishing returns, a factor supplied in excess is characterized by a low marginal product and, accordingly, a low price, and a factor whose supply is limited is characterized by a high marginal product and a high price. Therefore, when the supply of a factor decreases, its equilibrium price increases.
A change in the supply of any factor also affects the markets for other factors of production. In most cases, factors of production are used together. Therefore, the productivity of each factor depends on the number of other factors required for the production process. As a result, a change in the supply of any factor changes the profitability of the others.
Suppose a tornado destroyed many warehouses and carried away baskets and ladders used for collecting tangerines. The supply of baskets and ladders decreases, therefore the equilibrium price of rent of ladders and baskets increases. The owners who managed to preserve these means of gardeners' labor will rent them out to companies growing tangerines and receive more income. The impact of this event is not limited to the ladder and basket market. As the number of available ladders decreases, the marginal product of the workers involved in picking tangerines decreases. A decrease in the supply of ladders means a decrease in the demand for mandarin picker labor, which reduces the equilibrium wage.
Thus, an event that changes the supply of any factor of production can lead to a change in the profitability of all factors. A change in the income of any factor can be determined by analyzing the impact of the event on the value of its marginal product.
Economic resources are natural, human and human-made resources that are used to produce goods and services. These include: factory and agricultural buildings, equipment, tools, machinery, means of transport and communications, various types of labor, land and all kinds of minerals.
All economic resources can be divided into:
1. material resources (land, capital);
2. human resources (labor and entrepreneurial ability);
Information.
Economic resources such as land, capital, labor and entrepreneurial ability are also called in economics factors of production.
Earth How economic resource- these are all the benefits of nature that are used in production: arable land, pastures, forests, plants, animals, natural resource deposits, water resources, wind, climatic conditions, etc.
Capital– all manufactured production tools: machines, tools, equipment, buildings, vehicles, and etc.
Properties of resource-capital:
1. capital is always the result of a person’s previous work, therefore it is limited;
2. capital is not intended for direct use, but for further participation in the production process.
Capital as a factor of production is divided into:
1. basic– it includes something that can serve for many years (buildings, structures, machines, etc.);
2. negotiable– raw materials, Additional materials, fuel, etc.
Money are not classified as physical capital, since they do not produce anything. Money is financial capital.
Work- the source of all actions aimed at transforming the gifts of nature into things that satisfy human needs. Development national economy and its effectiveness depends on the quantity and quality of labor.
The amount of labor depends on the size of the population, its age and sex composition, the level of physical health and economic activity.
The quality of labor is determined by the educational and professional levels of workers, the social and technical division of labor, the degree of personal freedom, and psychological and physiological conditions.
Entrepreneurial ability – a special type of human resource, which consists in the ability to most effectively use all other factors of production.
Limited economic resources are the main problem of the economy.
All economic resources, factors of production, have one property: they are available in limited quantities.
Since our needs are limitless and our resources are limited, we are unable to satisfy all our needs. We have to decide which goods and services need to be produced and which should be abandoned under certain conditions. The problem of limited resources: car production in the world is growing every year, but there are much more people willing to buy them. To increase car production, more metal and rubber are required. engines, etc., and available resources are limited. All types of economic resources at the disposal of humanity as a whole, individual countries, enterprises, families, are limited both in quantitative and qualitative terms. They are obviously not enough to satisfy the entire range of human needs. This is the principle of limited, rare resources.
The problem of choice is complex in that, giving preference to one type of goods, we simultaneously refuse to consume others.
Let's say you need to produce two goods - guns and oil.
Alternative possibilities for the production of oil and guns.
The considered case shows that a full employment economy is always alternative, i.e. it must choose between military and civilian production by reallocating resources.
Society has to choose - to produce guns or oil, or to produce both guns and oil in certain proportions. This raises the problem of rational farming. This problem of choice always exists and will exist. Society strives to use its rare resources efficiently, i.e. it wants to obtain the maximum amount of useful goods and services produced from a limited number of resources.
Production possibility curve
Factors of production.
Factors of production(resource) - those resources that are involved in the production of something;
Work- represents the expedient human activity to create economic benefits, the manifestation of the totality of mental and physical abilities of a person as a whole.
Capital- refers to production (capital) resources. It includes the totality of goods created by a person’s past labor: buildings, structures, machines, machines, tools, etc. Stocks, bonds, money, bank deposits do not apply to a given factor of production.
Earth- refers to natural resources. As a factor of production, it covers all agricultural land and urban land that is allocated for residential or industrial development, as well as the total natural conditions necessary for the production of goods and services.
Entrepreneurial talent- presupposes the special abilities of a person, consisting in his ability to:
§ organize the production and release of goods and services by combining all the necessary factors of production;
§ make basic decisions on production management and business management;
§ risk money, time, labor, business reputation, since activity in the market is associated with great uncertainty, and the result is not guaranteed;
§ to be an innovator, that is, to introduce new technologies, new products, methods of organizing production.
One of the key economic resources in modern stage development of society is - information.
Possession of reliable information is a necessary condition for solving the problems facing an economic entity. However, even complete information is not a guarantee of success. The ability to use the information received to make the best decision under the current circumstances characterizes such a resource as knowledge. The carriers of this resource are qualified personnel in the field of management, sales and customer service, Maintenance goods.
In a market economy, all of the above economic resources are freely bought and sold and bring their owners special ( factor income:
§ rent (land);
§ interest (capital);
§ wages (labor);
§ profit (entrepreneurial ability).
1. The concept of factors of production: labor, land, capital, entrepreneurial abilities.
2. Labor as the main factor of production. The concept of the labor market. Specifics Russian market labor.
3. Capital as the main factor of production. Division of capital into fixed and working capital. The concept of human capital.
4. Land as a special factor of production. The concept of rent.
5. Entrepreneurship as a factor of production.
In previous lectures, during the consideration of the main problems modern economy, special attention was paid to the problem of limited resources in the modern world necessary for production. Also from the topic “Property and forms of entrepreneurial activity” we know that resources are objects of property, and this is not a coincidence, since each resource has its own material content and socio-economic form. The latter is determined by the nature of ownership of resources. At the same time, in theory and in practice, factors of production are identified, so there is a need to understand how resources and factors of production relate to each other.
In economic theory, the concept "resources» denote everything that society has at its disposal for the production of goods and services.
These include the following:
- natural (natural) resources- land and its subsoil, water and forest resources;
- material resources, represented by all the means of production available to society, i.e. tools of production, production buildings, structures, machines, machines, equipment, raw materials, materials, fuel, various types of energy, etc.;
- labor resources , represented by the labor force, i.e. population of working age;
- financial resources as Money, which are necessary for the production process;
- informational resources , necessary for modern computerized production.
At the same time, some resources are in the form of free or gratuitous goods (air, water, sunlight), which people still receive largely free of charge. Other resources, while rare, are available in relatively limited quantities. Mostly we're talking about about natural, material, labor and other resources. These benefits are called economic or economic in economic theory. All members of society have to pay for them and therefore use them rationally or efficiently.
Absolute limitation is mainly characteristic of natural and labor resources, while relative limitation is characteristic of material, financial and information resources.
The resources of society involved in the production of goods and services become its factors. In turn, production refers to the combination and use of various economic resources to obtain a variety of goods and services.
At the same time, we know that all resources are objects of property. As a result, each resource has its own material content and socio-economic form, determined by ownership of it. Production resources, presented in the unity of their material content and socio-economic (proprietary) form, are called factors of production. Thus, if we have a free resource in the form of air, then it cannot be a factor of production; if we have an economic resource in the form of, for example, a production line or workers, then this is necessarily a factor of production, since it is owned by someone.
For a long time, the interpretation of factors of production was based on theory of three factors, put forward by J.-B. Say, who proposed to consider such land, capital and labor. In the 20th century I. Schumpeter proposed another factor of production - entrepreneurship. Entrepreneurship is a special kind human resources, which is able to most effectively use all other factors of production, i.e. the entrepreneur takes the initiative to combine the resources of labor, capital and land (natural resources) into a single process of production of goods and services. It acts as a catalyst for this process. Thus, modern interpretation factors of production is based on the theory of four factors.
In Western Economics, the emphasis is placed only on the material content of factors of production. So, to the factor “ Earth“refers to all natural resources that are given by nature and over the supply of which man has virtually no control. These include, for example, arable land, forests, mineral deposits, water resources and others, regardless of who owns this land or other natural resources. This is done, according to the authors, in order not to aggravate relations between different owners of natural resources and not to notice their different attitudes towards the use of these resources. Although it is possible to cite facts where people work much more productively on their own land than on rented or state land.
Factor " work"in Economics is used to refer to any labor activity associated with achieving any result in the production of goods and services. All work performed by workers, engineers, teachers, doctors, artists, scientists and many others is covered by the concept of “labor”.
In Marxist theory, a factor of production is considered work force as a set of physical and spiritual abilities of a person that he possesses and which he is ready to use in the production of goods. Labor itself is considered here as a process of consumption (use) of labor power, which can neither be sold nor bought. It is believed that employee sells to the capitalist not labor, but labor power. The latter, according to Marx, becomes a special commodity, since the owner of labor power, separated from ownership of the means of production, is forced to become its seller in order to live and feed his family. Thus, Marx’s labor force as a factor of production is considered both from the material and material and from the socio-economic (proprietary) side.
IN last years the factor “labor” is beginning to be called “human capital”, and its owners, as highly qualified and educated workers, can count on increased income compared to people of average and lower qualifications (this will be discussed in detail in the third question of our lecture).
To the factor " capital» Western economists include all those means of production (equipment, machines, tools, industrial buildings and structures) that are used in the production and delivery of goods and services to the final consumer. They are also called investment goods, in contrast to consumer goods purchased by the population, but this is again a material interpretation of capital, absolutely unrelated to ownership of resources, and does not take into account who owns them, how and by whom they are used. If, for example, production resources are owned by the entrepreneur, then we observe the same attitude towards their use; if he rents them or takes them from the state, then he has a completely different, less zealous attitude towards them.
Entrepreneurship is another one important factor production. It is understood as the special labor efforts of entrepreneurs: management and organizational skills necessary for firms to produce goods and provide services, the ability to most effectively combine and use all other factors of production. In case of success, the entrepreneur receives entrepreneurial profit, in case of failure, he incurs losses, therefore knowledge, experience, and the ability to take reasonable risks are very important for any company and enterprise.
Here, in the foreground in the description of entrepreneurship, the emphasis in “Economics” is again on the material side. It’s one thing when an entrepreneur is at the same time the owner of any natural, material, financial or information resources and uses them very effectively, and another thing when he is again a tenant, and not the owner of resources, when he owns one, two bundles of rights out of 11, known to us from the lecture on property.
Thus, resources become real factors of production only in the unity of their material content and proprietary form.
An important point in the analysis of the main factors of production is the determination of prices for production factors, and, consequently, the demand for them. Prices for factors of production under conditions perfect competition determined by the relationship between supply and demand . However, it is necessary to note two important points, affecting the demand and, accordingly, the price of factors. Firstly, the demand for factors of production and the level of their prices are derived from consumer demand, since labor, capital, and land are ultimately necessary in order to produce the consumer goods people need.
Consequently, the demand for a particular factor of production depends on the demand for goods produced with the help of this factor. The demand for labor, capital and land is always derived demand. For example, the demand for weavers' labor is determined by society's demand for fabric; the demand for land suitable for growing vegetables is determined by the demand for vegetables, etc. This means that the amount of demand for a certain factor depends on the productivity of this factor in creating the product and on the price of the product. produced by the factor.
Secondly, all factors of production are economically and technologically interconnected; they cannot be used separately. To produce goods, all four factors are needed in a certain ratio to each other. The size of demand for each factor depends not only on the price level for this factor, but also on the price level for other resources: for example, the demand for labor depends not only on rates wages, but also on how many machines and raw materials will be purchased and what their prices are.
When the price of a certain factor of production increases, the demand for it (other things being equal) will decrease, and the demand for another factor will increase; more high price, for example, labor will lead to its replacement by machines. The possibility of mutual substitution of various factors of production makes it possible to combine them in a ratio that ensures the lowest production costs and the greatest profit.
