(a) The two factors on which supply of labour depends are:
1. Population: The most important factor affecting the supply of labour in a country is its population. The larger the population, the larger will be die number of persons who will have the capacity to perform physical or mental work. Hence, the larger will be the supply of labour.
2. migration (Out-migration) and Immigration (in-migration): Growth of population, is determined not only by its natural growth but also by the out migration and in migration of people. If some people leave the country, the population goes down, and if some people enter the country from outside, the population goes up. In India, the in-migration of refugees after the partition in 1947 and the Bangladesh war of 1971 led to substantial increase in the supply of labour.
(b) Two functions of capital are:
1. It helps the process of division of labour: Capital makes the system of division of labour more refined. It is only when there is an abundance of capital that is possible to assemble a large number of workers at one place.
2. It expands employment: Since capital expands production, it also expands employment. Thus, if we are to reduce the volume of unemployment in the country, we must pay attention to capital formation in a country.
(c) Determines the agricultural output: The agricultural output of a country is determined by the availability of cultivable land in a country. The production of food grains, cash crops, forest products, horticulture crops, etc. are determined by the supply of cultivable land in a country.
(d) Bandwagon effect: The consumer’s demand for a good may be affected by the tastes and preferences of the social class to which he belongs. If playing golf is fashionable among successful businessmen, then, as the price of golf ball rises, businessmen may increase his demand for the golf balls in order to show that he is a successful businessmen. This is known as Bandwagon Effect.
(e) Division of labour makes large scale production possible. Indeed, large scale production requires division of labour. If a car manufacturing company, for instance, wishes to make 10,000 cars in a year, but does not introduce division of labour in its factory it will have to hire so many workers that it will not be an economic decision for company. It is by virtue of division of labour that the company can produce 10,000 cars per year with a reasonable number of workers.