(a) Production: The process of creating various utilities which are consumed by the people of the country is called production. It includes the production of material goods only. “An act of creating utility is known as production”. There are five factors of production—land, labour, capital, enterprise, and organization.
The three factors which determines land productivity are as follows:
1. Natural fertility of land: Some plots of land are more fertile than others. Fertile land yields greater amount of output than the less fertile land. Land is a free gift of nature.
2. Proper use of land: Productivity of land also depends upon the use of land which the land is put to, e.g. some land may be more suitable for the cultivation of rice than for the cultivation of wheat. Supply of land is fixed.
3. Security of tenancy: Productivity of land often depends on the security of the tenant. If the tenant is not certain about the tenancy for the next year, he will not be enthusiastic in working over it and investing money on it, because by the time the investment would start giving results he may no longer remain the tenant.
(b)
1. Land: Basically, land is available from the nature as free of cost. In the initial stages, man paid no price for the land acquired by him. However to improve the usefulness or fertility of land or to make some improvements over land, some expenditure is to be incurred. But as such, it is available at no cost from nature. Its supply is fixed but it is indestructible and passive factor of production.
2. Labour: Labour is an active factor of production as labour can easily produce anything on its own without the help of land or capital because it is a living entity. The labourer and his labour are inseparable. The labour sells his services only not himself. Labour is perishable.
1. Capital: It is a passive factor of production because it remains ineffective without co-operation of labour. Capital is man-made and is bom out of savings done by man. It has the highest mobility. The supply of capital is elastic and can be adjusted easily and quickly according to demand. On the other hand supply of land is fixed, and supply of labour can neither be increased nor decreased quickly.
3. Entrepreneur: Entrepreneur is a person or group of persons controlling the policy of a firm. He conceives the idea of business, arranges various resources, combines different factors of production and makes every effort to convert his business idea into reality. Moreover, he is the one who bears the risk of the business.