ECONOMICS

4TH FORM

NOTES FOR 6TH NOV. 2024.

LABOUR

1. Review these areas from your assignment:- LABOUR, then write the following notes in
your books.
i. Definition
ii. Characteristics
iii. Functions
iv. Productivity
v. Efficiency
vi. Supply
vii. Division of labor and specialization

Specialization

Specialization is the division of economic activity into a number of specialized manageable

portions and assigning each portion to a specific person. Each person must possess the
knowledge, skill, competence, and experience to handle the task assigned. Specialization has
resulted in greater wealth being created, an increase standard of living with people having
greater choices. This increased production achieved through specialization is as a result of
division of labor.

Division of labor

Division of labor is where each worker concentrates on doing a particular task in the making
of a product, rather than doing all the steps in its production.

viii. viii. Advantages of specialization

1. Increase in the production of goods and services. More goods and services are produced
when workers specialize in the tasks they do.
2. Maximum use is made of each person’s skills and abilities. Allows persons to work on the
tasks they are best able to do.
3. Repetition of tasks will result in individuals becoming more skillful in the performance of
their tasks.
4. Less time in production. Time is saved when workers don’t have to switched from one
task to another.
5. Less time is spent in learning a job. More time can also be saved in training people.
 6. Allows for greater use of machinery. As labour becomes more specialized, machines are
put to greater use which allows for greater savings, in time and effort used in production.
7. Cost of production and output can be estimated more accurately.
8. Mass production may lead to standardization. Mass production refers to a production
process where the fewest workers are used to produce the greatest number of goods.

Disadvantages

1. Work can be monotonous. It is likely to become very boring for a worker to perform
exactly the same task every day.
2. Risk of occupational disease. Some tasks carry the risk of occupational illness. Eg spray
painting.
3. Workers may feel alienated.
4. Fall in demand for specialist skills. Skilled specialist may face redundancy if demand for
their type of work falls.
5. Reliance or dependency on others.
6. Mass production reduces variety and choice.

Limitations of Specialization

 Specialization occurs where there is a large demand for a product and mass production
 Some countries have a small labor force and too few workers to permit much
specialization.

3. CAPITAL

Definition –

Capital as a factor of production refers to man-made resources or producer goods and stocks of
consumer goods that assist in producing goods and services not yet in the hands of the consumer.

Characteristics –

1. Man-made Resource: Unlike natural resources, capital is created by humans, such as

machinery, buildings, and tools.
2. Durability: Capital goods are typically long-lasting. They provide utility over time rather
than being consumed immediately.
3. Productivity-Enhancing: Capital is used to increase productivity by enabling more
efficient or greater-scale production.
4. Depreciable: Over time, capital assets lose value due to wear and tear, known as
depreciation, which impacts their productive potential.
 5. Convertible: Capital can often be converted from one form to another, for instance, liquid
capital like cash can be converted into physical capital like machinery.
6. Requires Investment: Building up capital often requires an initial investment, reflecting
both the cost and time involved in acquiring it.
7. Influences Economic Growth: An increase in capital generally leads to higher production
capacity, boosting economic growth in the long term.
8. Risk-bearing: Investments in capital involve risk, as the value and utility of capital can
fluctuate based on market conditions and technological changes.

These characteristics make capital a unique and essential factor of production, supporting
labor and enhancing output in the economy.

Types of capital

1. Physical Capital: Tangible assets like machinery, buildings, vehicles, and tools used in the
production of goods and services.
2. Human Capital: Skills, knowledge, education, and experience possessed by individuals,
enhancing their productivity and earning potential.
3. Financial Capital: Monetary assets, such as cash, stocks, bonds, and other financial
instruments, used for investment or funding operations.
4. Social Capital: Relationships, networks, and social structures that facilitate cooperation, trust,
and mutual support within a community or organization.
5. Intellectual Capital: Intangible assets related to knowledge, innovation, and intellectual
property, including patents, trademarks, and copyrights.
6. Natural Capital: Resources provided by nature, such as forests, water, minerals, and
biodiversity, that contribute to the production of goods and ecosystem services.
7. Working Capital: Short-term assets needed to manage day-to-day business operations, like
cash, inventory, and accounts receivable.
8. Cultural Capital: Knowledge, behaviors, skills, and cultural assets valued in a specific
society, often tied to social mobility and status.

Each type of capital contributes uniquely to economic productivity, and organizations often
combine multiple types to sustain growth and development.

Accumulation

The accumulation of capital refers to the process of acquiring additional assets or resources over
time to increase productive capacity and wealth. This process is central to economic growth,
business expansion, and societal development.

1. Savings and Investment: Individuals, businesses, and governments save a portion of their
income or profits to invest in capital goods, such as machinery, technology, education,
 and infrastructure. These investments increase production potential and foster further
economic growth.
2. Reinvestment of Profits: Businesses often reinvest their profits into new equipment,
research and development, and other assets to improve productivity and competitiveness.
3. Technological Advancement: Investment in research, innovation, and development of
new technologies boosts capital efficiency, often making it possible to produce more with
less. Technological improvements enhance the value of capital and make production
processes faster and more cost-effective.
4. Human Capital Development: Accumulating human capital through education, training,
and experience enhances worker skills and productivity, contributing to overall economic
growth.
5. Foreign Direct Investment (FDI): Foreign investors bring capital into a country by
establishing businesses, funding local projects, and creating jobs. This inflow of capital
can greatly accelerate domestic capital accumulation.
6. Capital Markets: Access to capital markets, such as stock exchanges and bond markets,
enables companies to raise funds from investors. This capital can then be used to finance
business expansion, leading to more capital accumulation.
7. Government Policies and Infrastructure Investment: Government investment in
infrastructure, education, and healthcare enhances the productivity of both physical and
human capital, creating a foundation for long-term capital accumulation.
8. Savings Rate and Economic Stability: A higher savings rate and stable economic
conditions encourage capital accumulation, as individuals and businesses feel more
confident about the future and are more willing to invest.
In the long run, the accumulation of capital is crucial for increasing production capacity,
enhancing living standards, creating employment, and fostering sustainable economic growth.
Importance as a substitute for labor
Capital serves as an important substitute for labor in several ways:-
1. Increases productivity
2. Cost efficiency – overtime investing in machinery improves the cost efficiency of firms.
3. Reduces human error
4. Addresses labor shortages
5. Performs Hazardous Tasks
6. Supports Continuous Operations
7. Enhances skill requirement

Capital substitution is particularly vital in high-growth sectors and in areas where labor
is costly or limited. However, while capital can substitute for certain tasks, it often
complements labor by enabling workers to focus on more complex, creative, or
supervisory roles that technology alone cannot fulfill.