Resource MarketsLand & RentLabor & wages.Capital & interest.Entrepreneur ship & profit

Land• The term land has been given a special meaning in Economics.• It does not mean soil as in the ordinary speech, but it is used in a much wider sense.

Land• In the words of Marshall, land means

“ the materials and the forces which nature gives freely for man’s aid, in land and water, in air and light and heat.” • land stands for all natural resources

which yield an income or which have exchange value.• It represents those natural resources

which are useful and scarce, actually or potentially.

Land• Peculiarities of land:• In contrast to the other factors of

production, land presents certain well-marked peculiarities:

1. Land is nature’s gift to man.2. Land is fixed in quantity. It is said

that land has no supply price. i.e., price of land prevailing in the market cannot affect its supply; the price may be high or low, its supply remains the same.

Land• Peculiarities of land:4. Land is permanent. There are

inherent properties of the land which Ricardo called, “original and indestructible.”

5. Land lacks mobility in the geographical sense.

6. Finally, land provides infinite variation of degrees of fertility and situation so that no two pieces of land are exactly alike.

These are few peculiarities of land and they have a bearing on economic rent.

RentMeaning of rent:In ordinary speech the term ‘rent’ is used in a vide sense to mean a hiring charge, e.g.. rent of a house, a Tonga or a machines. But, in Economics, rent, or economic rent as it is called, is used in a special sense. It refers to that part of the payment by a tenant which is made only for the use of land, i.e. free gift of nature.

RentEconomic rent and contract rent;The payment that an agriculturist tenant actually makes to the landlord is not necessarily equal to this economic rent. A part of this payment may consist of interest on capital invested in the land by the owner in the form of buildings, fences, drainage wells, etc. that part of the payment which is made for the use of land only is economic rent and the total payment made by a tenant to the landlord is called contract rent.

RentRent as surplus:• In economics, the term ‘rent’ is being increasingly

used in the sense of a surplus, i.e., what a factor of production earns over and above what is essential to maintain its supplies in its present occupation.

• It can be easily understood that a rent in this sense can arise only when the supply of a factor of production is less than perfectly elastic, and this is the case with most of the factors.

RentRent as surplus:• But when the supply of a factor is not perfectly

responsive to changes in the reward of the factor, it can continue to earn more than what is necessary to call forth its supplies without any fear of new units of factors coming in to deprive it of extra reward.

• the supply of land in general, though not for a particular use, is absolutely inelastic, and as such, its supply is independent what it earns.

• That is a higher rent cannot attract more of it and a lower rent cannot drive it out.

• That is why it is said that land has no supply price.

RentRent and transfer earnings:• The transfer earnings represent the amount which a

factor can earn in its next best paid alternative use. • Suppose, a piece of land yields in its present use

Rs.500 a year and suppose further that if it is transferred to its next best use, it will yield Rs.400.

• In its present use, it yields Rs.100 more than its next best use. This sum of Rs.100 is a sort of surplus that the land is yielding in its present use. This surplus is called rent.

RentRent and transfer earnings:• We can look at it in another way. A payment of

Rs.400 is essential in order to retain this piece of land in its present use, but actually it yields Rs.500, i.e., Rs.100 extra.

• The price which is necessary to retain a given unit of factor in a certain industry may be called its transfer earning or transfer price.

• If, however, the factor is earning over and above its transfer earnings of transfer price, the surplus or excess earnings is economic rent.

LaborIn the ordinary speech, the term ‘labor’ means a mass of unskilled labor. But in economics it is used in a wider sense. • Any work, whether manual or mental, which is

undertaken for a monetary consideration, is called ‘labor’ in Economics.

• Any work done for the sake of pleasure or love does not fall under labor in the economic sense.

In Marshall’s words, “Any exertion of mind or body undergone partly or wholly worth a view of some good other than the pleasure derived directly from the work is called labor”.

LaborPeculiarities of labor:1. Labor is inseparable from the

laborer himself.2. Labor has to sell his labor in person3. Labor does not last. It is perishable.

As Erich Roll remarks, “he has no reserve price.” The laborer has, therefore, to accept the wage offered to him.

LaborPeculiarities of labor:4. Labor has a very weak bargaining

power.5. Changes in the price of labor react

rather curiously on its supply.6. There can be no rapid adjustment of

the supply of labor to demand for it, because supply cannot be increased quickly, nor can it be reduced.

Labor

• Racial Qualities• Climate Factors• Education• Organization• Personal Qualities• Working Hours• Industrial

Organization and Equipment• Factory

Environments• Fair and Prompt

Payment• Social and

Political Factors

Factors determining efficiency of labor:

LaborHow do markets allocate national income among the many factors of production?

Capital• Capital refers to that part of a man’s

wealth which is used in producing further wealth or which yields an income.

• But capital is not a primary or original factor of production.

• It is a ‘produced means of production’. • The term ‘capital’ is generally used for

capital goods, e.g., plant and machinery, tools and accessories, stocks of raw materials, goods in process and fuel.

Meaning:

CapitalLand is not regarded as capital because:a) land is a free gift of nature but capital is

man-made or is a ‘produced’ agent of production;

b) capital is perishable, whereas land is indestructible and permanent;

c) capital is mobile but land has not mobility;

d) the amount of capital can be increased but the quantity of land is fixed and limited; and

e) income from capital is uniform whereas rent of land varies;

Is land capital?

CapitalCapital plays a vital role in the modern productive system. Production without capital is hard for us even to imagine. Nature cannot furnish goods and materials to men unless he has the tools and machines for mining, farming, fishing etc.Because of its strategic role in raising productivity capital occupies a central position in the process of economic development. In fact, capital formation is the very core of economic development.

Importance of capital

CapitalAnother important role of capital formation is the creation of employment opportunities in the country. Capital formation creates employment at two stages. • First, when the capital is produced, some

workers has to be employed to make capital goods like machinery, factories, dams, irrigation works, etc.

• secondly, more men have to be employed when capital has to be used for producing further goods.

Importance of capital

Enterprise/Entrepreneurship:

Entrepreneurs’ role:• The role that the entrepreneur plays

consists in coordinating and correlating the other factors of production.

• He starts the work, organizes and supervises it.

• He undertakes to remunerate all the factors of production: to pay rent to the land lord, interest on the borrowed capital, and wages to labor, and pays them in advance of the sale of goods.

The fourth factor of production is enterprise which is supplied by the entrepreneur

Enterprise/Entrepreneurship:Functions of entrepreneur:The entrepreneurs’’ functions may be summarized as:i. Initiating a business enterprise by

mobilizing and harnessing the necessary productive resources.

ii. Taking the final responsibility of the business enterprise- risk-taking and uncertainty bearing.

iii. The entrepreneur as an innovator.