Livestock Economics, Marketing and Business Management

FACTORS OF PRODUCTION - LAND,LABOUR AND CAPITAL

Land

• The term land has been given a special meaning in economics.
• Land does not mean soil surface alone as it is ordinarily understood, but it includes the materials and forces which nature gives in land, water, air, light and heat.
• Land has some characteristic features. They are
  • Land is fixed in quantity
  • Land is immobile
  • Land is permanent i.e. there are some inherent properties of land which are original and indestructible.
  • Land has infinite variation of degrees of fertility so that no two pieces of land on earth is same.

Rent

• It is a reward for land and refers to that part of payment by a tenant which is made only for use of land i.e free gift of nature.
• It is of two types namely economic rent and contract rent.
• Economic rent is the payment made for the use of land only.
• Contract rent is total payment made by tenant to landlord.

Lease

• It is defined as an oral or written contract outlining how a tenant and landlord will do business and share income, provide for expenses, improve the land and determine business program, practices and compensation for demage to the land or termination of lease.
  
• It is of five types in order of risk and return to the tenant.
• Cash lease - Direct cash payment at end of year
• Flexible cash lease - Hybrid of cash and crop share.
• Crop share lease - sharing only crop not cash deal
• Livestock share lease - Sharing livestock and its income.
• Labour share lease - Giving way for landlord to acquire extra labour and suitable for young farmer without enough capital.

Labour

• Labour means any exertion of mind or body undertaken for a monetary consideration.
• Any work done for the sake of pleasure does not fall under labour in economic sense. Wage is known as reward of labour.

Characteristics of labour

• Labour is perishable
  • A day without work in worker’s life is lost forever. He cannot store his labour and deliver it later.
• Labour has a poor bargaining power
  • As labour is perishable, they accept even low wages.
• Labour is inseparable from labourers
  • Labour is an integral part of the labourer’s personality.
• Supply of labour changes very slowly
  • Supply of labour cannot be curtailed at once even if wages fall because the labourers must earn their subsistence.
  • It also takes time for children to grow up or people to get trained in order to increase the supply of labour.
  • Labour is not so mobile as capital – It happens due to differences in language, environment, habit etc.

Wage

• It is a reward for labour. It means payment made for services of labour. It may be defined as a sum of money paid under contract by an employer to a worker for his physical or mental service rendered.
• It is of two type namely nominal wage and real wage.
• Determinants of wages are efficiency, existence of non-competing groups, ability of learning trade, social acceptance, hazardous and dangerous occupation, bargaining power.

Nominal Wage

• It is a wage paid or received in terms of money.

Real Wage

• It is not money wage but rather it represents that part of standard of living of labourer.
  
• It includes purchasing power of money and constitutes subsidiary earning, extra work without extra payment, regularity or irregularity of employment, condition of work, future prospect, etc.

Capital

• Capital is a stock or fund existing at a given moment.
• Capital is man made. Man constructs capital equipment to help him in the production of other goods and services. Hence capital is defined as produced means of production.

Characteristics of capital

• It is man - made and its supply is therefore, within the control of man.
• It involves the element of time as it renders its services over a period of time. Therefore payment to capital is calculated in terms of so much per cent per annum.
• Production of wealth with the aid of capital has been called the round about process of production.
• Labour can produce more with aid of capital than it was without it. Since capital is productive, there is demand for capital.
• People look forward to getting an income by accumulating capital. Hence capital is prospective.

Functions of capital

• Capital increases productivity by enabling the entrepreneur to acquire the other factors of production.
• It provides subsistence to enable workers to maintain themselves during the period of waiting for marketing of goods.
• It provides appliances or auxiliaries of production to carry on production effectively on modern lines.
• It provides raw materials to feed the machines.

Interest

• It is a reward or payment for capital use.
• It is of two types ie. Gross interest and Net interest.
• Gross interest is the total payment which debtor pays to the creditor.
• Net or pure interest is the payment only for the services of capital as such or for the money borrowed.
• Gross interest include net interest, insurance against risk, wage for management, return for inconvenience.