The factors of production | IGCSE Class 10 Economics Notes

This note covers factors of production, land, labour, capital, enterprise, factor rewards, geographical and occupational mobility, and changes in the quantity and quality of productive resources. It also covers depreciation and net investment, and how value added is shared among the factors.

What are the factors of production?

Definition: Factors of production are the resources used to produce goods and services. They are grouped into land, labour, capital and enterprise.

Production means creating goods and services that satisfy wants. Goods are physical products; services are activities performed for others. An input is something used in production, while output is what the production process produces.

Land means natural resources used in production. Labour is human physical and mental effort used in production. Capital means human-made resources used to produce other goods and services. Enterprise is the organisation of production and bearing of its business risks.

How do the factors work together?

A firm is a business organisation producing goods or services. Its productive activity combines resources. Possessing natural resources alone does not necessarily make a country wealthy: what matters is how resources are used to generate production and income.

Tools and machines assist human effort, while someone must decide how resources will be brought together. The contribution of a worker differs from the contribution of a machine, even when both are involved in producing the same output.

The four categories describe productive contributions. They do not require four different owners. A person may provide work, own equipment and organise a business. These contributions should be identified separately when explaining how production takes place.

Classification therefore depends on the contribution being described. A machine belongs under capital, the effort of its operator under labour, and the decision to organise production and bear its risks under enterprise.

What does land mean in economics?

Land includes the natural resources used in production, rather than simply the ground on which a business stands. Minerals, forests, water and fertile soil are natural resources. Their productive contribution is different from that of manufactured tools or buildings.

A useful distinction is between a resource provided by nature and a resource made through production. The natural site and the building constructed on it are therefore different factors: the site is land, while the building is physical capital, meaning human-made productive resources.

How do renewable and non-renewable resources differ?

Renewable resources can regenerate and provide a continuing supply when their use remains within their capacity to recover. Trees in forests and fish in the ocean are examples. Non-renewable resources, such as fossil fuels, become exhausted through extraction and use.

The availability of a renewable resource does not mean that any rate of extraction can continue. Resource use must be considered alongside regeneration, the process through which a natural resource is replenished. Excessive extraction can deplete resources.

Resource depletion means using up a resource so that less remains available. Environmental damage also affects usable resources: polluted water and degraded soil can become less suitable for productive use. Quantity and usefulness must therefore be considered separately.

The reward associated with land is rent, the income received for providing natural resources for production. This economic use of rent identifies a factor reward; it is not simply a label for every payment called rent in everyday language.

When identifying land, explain the natural resource involved. Saying that a firm uses land is less precise than identifying the natural site, water or mineral resource and showing how it contributes to production.

What is labour, and why does its quality matter?

Labour includes mental as well as physical effort. The work of teachers, doctors, engineers and drivers is labour. Differences in their tasks do not change the fact that people are contributing effort and skill to production.

The reward for labour is wages, a term used here to cover payment for work, including salaries. The worker supplies a service. The person is not a piece of physical capital that a business purchases and owns.

What is human capital?

Human capital is the productive knowledge, skills and health embodied in people. Education and training develop capabilities, while health affects the ability to work. These qualities help explain why counting people alone does not describe the productive strength of labour.

Labour productivity is output per worker or per unit of working time. It differs from the total number of workers. Better skills can improve the effectiveness of existing workers without any increase in their number.

Education helps people understand and adapt to new technologies. Technology means the knowledge and methods used in production. An educated workforce can contribute to innovation, meaning the introduction of new products or improved ways of doing things.

On-the-job training develops skills through training connected with employment. Workers may learn under a skilled colleague or attend training away from the workplace. In either case, the purpose is to develop their productive capabilities.

Health also matters. A sick worker without access to medical care is compelled to be absent from work, causing a loss of productivity. Health expenditure includes preventive care, treatment, clean drinking water and sanitation, meaning arrangements for hygienic conditions and waste disposal.

Human capital remains embodied in its owner. A bus can be owned by someone who is absent while it operates, but the driver's knowledge and ability belong to the driver. Distinguish the physical vehicle from the labour service and human capital involved in driving it.

What is capital, and how does it differ from money?

Physical capital consists of human-made resources used in production. Tools, machinery, buildings and transport infrastructure are examples. Infrastructure means the basic facilities, such as roads and bridges, that support economic activity.

Capital goods assist production over successive production cycles. A machine helps produce other commodities without itself being transformed into each item of output. Its productive role distinguishes it from a good bought for personal consumption.

Why does the use of a good matter?

Consumer goods satisfy the wants of their final consumers. A durable good is one that lasts over time, but durability alone does not make it capital. Consumer durables also last and may need repair or replacement.

Classify a good by its use in the situation given. Tools and machinery that assist production are capital goods. A home computer used for personal consumption is a consumer durable. The fact that both types of goods last over time does not remove this distinction.

Finance means the money available to fund an activity. Money can purchase productive equipment, but money itself is not the machine, tool or building used in production. In this factor classification, distinguish physical capital from the funds used to acquire it.

How is the capital stock maintained?

The capital stock is the amount of capital available at a particular time. Investment means the production or acquisition of capital goods to add to or replace productive capital. Machinery gradually wears out and requires maintenance or replacement.

Depreciation is the allowance for the wear and tear of capital goods. Some investment replaces worn-out equipment, so producing new machines does not necessarily increase the total capital stock. Replacement and additional capacity are different contributions.

The capital goods produced in a year make up gross investment. The new addition to the capital stock is net investment, which is found by subtracting depreciation from gross investment.

$$\text{Net investment} = \text{Gross investment} - \text{Depreciation}$$

Depreciation is an accounting concept. On the simple assumption of a constant yearly allowance, it is the cost of the capital good divided by the number of years of its useful life.

$$\text{Annual depreciation} = \frac{\text{Cost of the capital good}}{\text{Years of useful life}}$$

Worked example 1: yearly depreciation of a machine. A firm invests in a new machine that may be in service for twenty years before it falls into disrepair and needs to be replaced. What share of its original value is depreciated each year?

Formula: annual depreciation is the cost of the machine divided by 20 years of useful life. Answer: each year one twentieth of the original value is treated as depreciation, which is 5 per cent of that value.

The factor reward associated with capital is interest, income received for providing capital. Keep the productive resource, the money financing its purchase and the income received by its provider conceptually separate.

What does enterprise contribute to production?

An entrepreneur is a person who organises a business and bears its risks. Enterprise is this organising and risk-bearing contribution. Entrepreneurship is the process of starting and developing a business activity.

The entrepreneur identifies an opportunity and brings together the resources needed to pursue it. This involves deciding how land, labour and capital will be combined. Knowledge of where resources are available and how to use them helps organise production.

Must an entrepreneur own every resource?

An entrepreneur need not already possess every resource needed by the business. Finance may be arranged, and agreements may be made for equipment, materials and services. Ownership of every input is different from organising their combined use.

Risk-bearing means accepting the possibility that the business outcome will be worse than expected. Income from enterprise is not assured. The entrepreneur must judge an opportunity despite uncertainty about future sales, costs and performance.

The reward for enterprise is profit, the amount by which total revenue exceeds total cost. Revenue means income from selling output; cost means the expense of production. A loss occurs when total cost exceeds total revenue.

The relationship can be written as a formula, with profit as the excess of revenue over cost.

$$\text{Profit} = \text{Total revenue} - \text{Total cost}$$

How are entrepreneurial abilities developed?

Entrepreneurship involves skills and knowledge that can be learned through education, vocational training, observation and work experience. Vocational training develops capabilities for particular kinds of work. It is misleading to assume that entrepreneurial ability must be entirely inborn.

Innovation is part of enterprise. It may involve new products, new markets, new sources of inputs or improved methods of organisation. Innovation may reduce costs or increase revenue; it should not be treated as a guarantee of either outcome.

Enterprise also differs from simply working in a business. Performing an assigned task supplies labour. Taking responsibility for organising resources and accepting the uncertain business outcome supplies enterprise. The same person may perform both roles, but their economic contributions remain distinguishable.

How are the four factors rewarded?

Factor rewards are the incomes received for supplying factors of production. The standard pairs are land and rent, labour and wages, capital and interest, and enterprise and profit. Match each reward to the contribution that earns it.

Why are output and income connected?

Production generates goods and services and creates incomes for those supplying productive resources. The income received gives its recipients purchasing power, meaning the ability to buy goods and services. Resource use and income generation are connected parts of economic activity.

Two boxes, Firms on the left and Households on the right, are joined by four curved arrows. The top arrow, labelled Spending, runs from Households to Firms. The arrow below it, labelled Goods and Services, runs from Firms to Households. The next arrow, labelled Factor Payments, also runs from Firms to Households. The bottom arrow, labelled Factor Services, runs from Households to Firms. The letters A, B and C mark the Spending, Goods and Services, and Factor Payments arrows.

See Fig. 2.1 in your NCERT textbook

This is a simplified model in which households spend all their income on goods and services from domestic firms: there is no saving, no government and no foreign trade. In it, households render factor services and firms make factor payments, the sum total of the remunerations earned by the four factors of production. Households use these incomes to buy the output they helped to produce, so the income returns to firms as sales revenue.

Do not confuse a firm's sales revenue with the entrepreneur's profit. Revenue is received from customers before production costs are deducted. Payments for resources are costs to the firm and incomes to the people supplying those resources.

Profit is different from an assured payment. A business may earn less revenue than expected or face higher costs. The organising and risk-bearing role explains why enterprise is associated with an uncertain residual, meaning what remains after costs have been met.

Draw four pairs of boxes. Link land to rent, labour to wages, capital to interest, and enterprise to profit. Label each connection “reward for supplying the factor”.

The diagram is a classification aid, rather than a claim that all resource owners receive equal incomes. It shows which reward goes with which factor. It does not show how large any payment will be.

A good explanation identifies both sides of the relationship. Naming wages alone identifies a reward; explaining that wages are paid for human effort identifies the productive service behind the payment. Use the same approach for rent, interest and profit.

How is the value of production shared among the factors?

Intermediate goods are raw materials that one firm buys from another and completely uses up in production. The value added of a firm is its net contribution to production: the value of what it produces minus the value of the intermediate goods it uses. Deducting them avoids double counting.

$$\text{Value added} = \text{Value of production} - \text{Value of intermediate goods used}$$

Worked example 2: value added of a farmer and a baker. In a year, farmers grow wheat worth ₹100, needing no input other than human labour. They sell ₹50 worth of it to bakers, who use all of it, and no other raw material, to produce bread worth ₹200. Find the value added of each and of the economy.

Farmers: ₹100 minus ₹0 of intermediate goods. Bakers: ₹200 minus ₹50 of wheat. Answer: the farmers add ₹100 and the bakers add ₹150, so the value added of the economy is ₹100 plus ₹150, which is ₹250. Adding ₹200 and ₹100 gives ₹300, which counts the ₹50 of wheat twice.

The value added of a firm is distributed among its four factors of production. The wages, interest, profits and rent that the firm pays out must therefore add up to its value added, where profits are gross profits, counted before depreciation is deducted.

$$\text{Value added} = \text{Wages} + \text{Interest} + \text{Profit} + \text{Rent}$$

Value added can be measured before or after depreciation. Gross value added includes depreciation, the wear and tear of capital in production. Net value added deducts it.

$$\text{Net value added} = \text{Gross value added} - \text{Depreciation}$$

Worked example 3: gross and net value added. A firm produces goods worth ₹100 in a year. It uses intermediate goods worth ₹20, and the value of its capital consumption (depreciation) is ₹10. Find its gross and net value added.

Gross value added is ₹100 minus ₹20. Net value added is ₹100 minus ₹20 minus ₹10. Answer: the gross value added is ₹80 per year and the net value added is ₹70 per year.

Worked example 4: factor incomes of two firms. Firm A uses no raw material and produces cotton worth ₹50, which it sells to firm B. Firm B uses the cotton to produce cloth and sells it to consumers for ₹200. Firm A gives ₹20 to its workers as wages and keeps ₹30 as profits. Firm B pays ₹60 as wages and keeps ₹90 as profits. Find the value added of each firm and show that it equals the factor incomes.

Value added of A is ₹50 minus ₹0. Value added of B is ₹200 minus ₹50. Answer: A adds ₹50, which is ₹20 of wages plus ₹30 of profits. B adds ₹150, which is ₹60 of wages plus ₹90 of profits. Together the firms add ₹200, which equals total wages of ₹80 plus total profits of ₹120.

This example leaves out rent and interest. That does not change the result, because after wages are paid the remainder of a firm's value added is shared between rent, interest and profits.

How mobile are land and capital?

Factor mobility means the ability of a factor of production to move between places or between productive uses. Geographical mobility concerns movement from one location to another. Occupational mobility concerns movement between different jobs or uses.

Immobility means difficulty or inability in making such a movement. Identify which kind of movement is involved before judging a factor's mobility. A resource can be difficult to move geographically while still being adaptable to another use.

What limits the mobility of land?

A natural site is geographically immobile: its location cannot be transferred elsewhere. However, the use of a site may change. Its occupational mobility depends on whether it is suitable and permitted for the proposed alternative use.

Physical characteristics matter. Soil quality and access to water affect suitability for cultivation. The features that make a site useful for one activity do not establish that it is equally suitable for every other activity.

Distinguish the location of a natural resource from an extracted product that can be transported. Moving material away from a site does not move the site itself. This prevents an overgeneralisation about all things associated with the factor land.

Why does capital mobility vary?

Capital includes different kinds of resources. Tools and vehicles can be moved between locations, whereas a building remains attached to its site. Transport costs and the difficulty of dismantling and reinstalling equipment can limit movement.

Specialised capital is equipment designed for a particular productive task. Its occupational mobility may be low because it cannot easily perform another task. Equipment adaptable to several uses has greater scope for occupational movement.

Neither size nor ownership alone establishes mobility. Ask whether the capital can physically move, what moving it involves and whether it can perform the new task. Geographical movement does not automatically establish suitability for a different productive use.

What influences the mobility of labour and enterprise?

Labour mobility depends on people's ability and willingness to move. Workers may respond to better employment opportunities, but the move must be feasible. Skills, information, costs and personal circumstances affect whether opportunities can be taken.

What affects geographical labour mobility?

Migration means moving to another area or country to live or work. Workers may migrate in search of higher salaries. Relevant costs include transport, living expenses at the destination and the personal difficulty of adjusting to an unfamiliar social setting.

Information also matters. Workers need to know where jobs exist, what they pay and what qualifications they require. A higher advertised salary alone does not establish how attractive a move is after its costs are considered.

Housing availability, family ties, language and restrictions on entering or working in another country can limit movement. Geographical mobility is therefore not simply a matter of measuring the distance between the worker and the vacancy.

What affects occupational labour mobility?

A worker needs suitable skills and qualifications to enter a different occupation. Retraining means learning skills for new work. Its cost, availability and duration affect how readily someone can change occupation.

Education and transferable skills, meaning abilities useful in more than one job, can widen the range of work a person can undertake. Experience in one occupation does not establish competence in every other occupation.

How mobile is enterprise?

Entrepreneurial skills such as organisation and decision-making may be applied in different activities. Movement into a new activity nevertheless requires knowledge of its market, resources and production methods. General business experience does not remove these requirements.

Access to finance and information can influence whether an entrepreneur starts an activity elsewhere. Personal willingness to relocate and familiarity with local conditions also matter. Enterprise may be adaptable, but it should not be described as perfectly mobile in every situation.

What changes the quantity of factors of production?

Quantity means the amount of a factor available. It is different from quality, the factor's productive effectiveness or suitability. More workers and better-trained workers describe different changes, even though both can strengthen productive capacity, meaning the ability to produce.

How can available land and labour change?

The quantity of usable natural resources can change through discovery, depletion or bringing previously unusable land into productive use. Discovery makes a resource known and available for exploitation; it does not mean that humans created the natural deposit.

Non-renewable resources decline as they are extracted. Renewable resources depend on regeneration as well as use. A discussion of land quantity must therefore distinguish the physical area of a country from its available stock of productive natural resources.

The labour force comprises people working or available for and seeking work. Its size is influenced by the working-age population, participation in paid work, retirement and migration. The entire population is not identical to the labour force.

Immigration is entry into a country to live or work; emigration is departure to live or work elsewhere. These movements can change the number of available workers. Longer working hours can also increase labour services without increasing the number of workers.

How can available capital and enterprise change?

Investment can increase physical capital, but replacement must be distinguished from expansion. If new equipment merely replaces equipment withdrawn from use, the capital stock need not become larger. Additions and losses both matter when judging the overall change.

The quantity of enterprise can increase when more people start and organise businesses. Access to finance, opportunities for profit and opportunities to develop business skills can encourage entry. Business closure can reduce the number of active enterprises.

State the resource being counted and the mechanism changing it. More money spent on a factor does not, by itself, prove that there are more units of that factor. Spending may also reflect changes in price or quality.

What changes the quality of factors of production?

Factor quality concerns how suitable and effective a resource is for production. The quantity may remain unchanged while the quality changes. Examine what the resource can contribute, rather than relying only on how many units exist.

How can land and labour become more effective?

The quality of agricultural land depends partly on soil fertility and the availability of water. Soil conservation and appropriate water management can help maintain productive usefulness. Pollution and degradation can reduce it even where the measured area remains the same.

Labour quality develops through education, health care and training. Education builds knowledge; training develops practical competence; better health supports the ability to work. These are distinct mechanisms, rather than different names for an increase in the number of workers.

Skills also help workers adapt to changing technology. More years of schooling, however, may not reflect the quality of education. A measure of spending or attendance should not automatically be treated as a complete measure of productive capability.

How can capital and enterprise improve?

Improved technology can make capital more effective. Maintenance helps preserve existing equipment, while technological change can make equipment obsolete, meaning outdated relative to newer methods. The number of machines alone does not reveal their condition or capabilities.

Entrepreneurial quality can develop through training, experience and better knowledge of resources and markets. Better organisation concerns how resources are combined. Innovation concerns introducing improvements or new activities. Both can improve the productive use of available inputs.

Finally, improved resources provide opportunities for greater production; their use still matters. Explain which factor changes, whether the change concerns quantity or quality, and how it affects the productive contribution of that factor.

Glossary

• Factors of production — Resources used to produce goods and services, grouped as land, labour, capital and enterprise.
• Land — Natural resources used in production, including soil, water, forests and mineral resources.
• Labour — Human physical and mental effort used in producing goods and services.
• Capital — Human-made resources used to produce other goods and services.
• Enterprise — The productive contribution that organises resources and bears the risks of business activity.
• Factor rewards — Incomes received for supplying productive resources: rent, wages, interest and profit.
• Human capital — Productive knowledge, skills and health embodied in people through education, training and health investment.
• Labour productivity — Output produced per worker or per unit of working time.
• Geographical mobility — The ability of a factor of production to move between locations.
• Occupational mobility — The ability of a factor to move between different jobs or productive uses.
• Investment — Production or acquisition of capital goods that add to or replace productive capital.
• Depreciation — An allowance for the wear and tear of capital goods used in production.
• Profit — The amount by which a firm's total revenue exceeds its total cost.
• Renewable resources — Natural resources capable of regeneration, supporting continuing use within their capacity to recover.
• Labour force — People who are working or are available for and seeking work.

Common errors and misconceptions

• Misconception: Land means only the ground. Correct: It covers natural resources used in production, including water, forests and minerals.
• Misconception: Labour means only manual work. Correct: It includes mental effort as well as physical effort used in production.
• Misconception: Money and physical capital are the same factor. Correct: Money finances purchases; physical capital is the productive equipment and other human-made resources acquired.
• Misconception: Every durable good is capital. Correct: Consumer durables also last over time. Classification depends on productive use or personal consumption.
• Misconception: An entrepreneur must own every resource used. Correct: Resources can be arranged through finance and agreements; enterprise concerns organisation and risk-bearing.
• Misconception: Geographical immobility means no alternative use is possible. Correct: Occupational mobility is separate: a fixed site may be usable for different activities.
• Misconception: Every new machine increases the capital stock. Correct: Some machines replace equipment withdrawn from use, so additions must be considered alongside losses.
• Misconception: Better training increases the number of workers. Correct: Training improves labour quality; the number of workers may remain unchanged.

Exam-style questions with model answers

Q1. Define labour and state its factor reward. [2 marks]

1. Labour is the physical and mental effort people contribute to producing goods and services.
2. Its factor reward is wages, including salaries paid for work.

Q2. Identify the factor and its reward in each case: a natural site supplied for production, and machinery supplied for production. [4 marks]

1. The natural site is land because it is a natural resource used in production, rather than a resource made by people.
2. The factor reward for providing that natural site is rent, the income associated with supplying land.
3. The machinery is capital because it is a human-made resource that assists the production of other output.
4. The factor reward associated with providing capital is interest, rather than wages paid for human effort.

Q3. A bus transports people and materials, and its driver supplies the knowledge and effort needed to drive it. Identify the physical capital, labour and human capital in this description. [3 marks]

1. The bus is physical capital because it is a human-made resource used to provide transport services. It is the productive equipment in this description.
2. The driver's effort in operating the bus is labour. The driver supplies a service through work rather than becoming a resource owned by the business.
3. The driver's knowledge and ability are human capital. They are productive capabilities embodied in the person, distinct from the physical vehicle being operated.

Q4. Explain four contributions of an entrepreneur to production: identifying opportunities, organising resources, innovation and risk-bearing. [4 marks]

1. The entrepreneur identifies an opportunity to supply goods or services that meet wants, giving the business activity a purpose.
2. The entrepreneur organises land, labour and capital, deciding how available resources will be combined for production.
3. The entrepreneur introduces innovation through new products, markets or methods, which may improve production or the firm's sales opportunities.
4. The entrepreneur bears business risk because the outcome is uncertain and profit is not assured even when resources have been committed.

Q5. Analyse how training, health care and job information can improve the productive use of labour. Give a direct effect and a resulting benefit for each. [6 marks]

1. Training develops workers' knowledge and practical skills. It changes the quality of their labour rather than necessarily increasing the number of workers.
2. Those improved capabilities help workers perform productive tasks more effectively and adapt to production methods, supporting higher labour productivity.
3. Health care improves workers' health and ability to work. It addresses the loss of productive effort associated with illness.
4. A healthier worker can provide labour more consistently, reducing interruptions to work caused by illness and supporting productive activity.
5. Job information tells workers about opportunities, salaries and skill requirements. It improves the knowledge available when they make employment decisions.
6. Better-informed choices can help workers find work suited to their capabilities, improving the use of the human capital they already possess.

Q6. Explain how transport costs, higher living expenses at a destination and adjustment to an unfamiliar social setting can each discourage migration for work. For each influence, identify the burden and explain its effect on the decision. [6 marks]

1. Transport costs create an expense that must be met when relocating. Moving to a job therefore involves an initial financial burden.
2. That expense reduces the attraction of relocation because the worker must compare the expected improvement in earnings with the cost of moving.
3. Higher living expenses at the destination mean the worker must spend more to maintain life there after taking the job.
4. Consequently, a higher salary may offer a smaller improvement in available income than the salary difference alone suggests, discouraging movement.
5. Adjustment to an unfamiliar social setting creates a personal burden associated with leaving a familiar environment and adapting to different circumstances.
6. This burden can reduce willingness to move even where earnings are higher, so geographical labour mobility depends on more than the salary offered.

Q7. Distinguish an increase in the quantity of labour from an improvement in its quality. State one cause of each change. [4 marks]

1. An increase in labour quantity means more workers or more working hours are available for productive activity.
2. Immigration of people entering the labour force can increase the number of available workers in the receiving country.
3. An improvement in labour quality means workers have stronger productive capabilities, even if their number remains the same.
4. Training can improve quality by developing skills and knowledge that help existing workers carry out their tasks more effectively.

Q8. Explain why replacing worn-out machinery does not necessarily increase the capital stock. [2 marks]

1. The capital stock measures productive capital available at a particular time, so equipment withdrawn from use reduces it.
2. Replacement machinery may merely offset that withdrawal, maintaining the stock rather than increasing its quantity.

Key takeaways

• Land, labour, capital and enterprise classify the different productive contributions used to create goods and services.
• Land includes natural resources; labour includes mental and physical effort; capital consists of human-made productive resources.
• Enterprise combines resources, introduces innovation and bears business risks; the entrepreneur need not own every resource used.
• The factor rewards are rent for land, wages for labour, interest for capital and profit for enterprise.
• Geographical mobility concerns movement between places, while occupational mobility concerns movement between different jobs or productive uses.
• Skills, information, moving costs and personal circumstances affect whether workers can and will move to new employment.
• Quantity concerns the amount of a factor; quality concerns its productive effectiveness, so these changes require different explanations.
• Training and health investment develop human capital, while physical investment may replace worn-out equipment or increase productive capital.

Test yourself

Why is a building classified differently from its natural site?

The site is a natural resource and therefore land; the building is human-made productive capital.

What is the difference between labour and human capital?

Labour is productive human effort; human capital is the knowledge, skills and health embodied in the people providing that effort.

What reward is associated with each factor?

Land earns rent, labour earns wages, capital earns interest, and enterprise earns profit.

What distinguishes geographical from occupational mobility?

Geographical mobility concerns changing location; occupational mobility concerns changing the job or productive use of a factor.

Why might specialised equipment have low occupational mobility?

Equipment designed for a particular task may be difficult to adapt for a different productive use.

Does a higher salary automatically make migration attractive?

No. Workers also consider transport costs, living expenses and the personal difficulty of adjusting to a different setting.

Why can capital investment leave the quantity of capital unchanged?

New equipment may replace equipment withdrawn from use, offsetting a loss rather than adding to the stock.

How can labour quality improve without more workers?

Education, training and health care can improve existing workers' productive capabilities without increasing their number.