3.6 - Firms and Production Flashcards
What factors influence the demand for the factors of production?
The demand for goods/services
The price of different factors of production
The availability & productivity of the factors
How does Demand for goods and services influence the demand for the factors of production
The demand for the factors of production is a derived demand. Greater the demand for the product or services the more product they need to meet demand they will require more labour to meet the demand or more capital.
How does the Price for the different Factors of production influence the demand for the factors of production?
The price of alternative factors of production are constantly monitored by firms in order to ensure that they are maximising profits.
The Price of alternative or substitute raw material considered of installing new machinery will be monitored against the cost of hiring labour.
How does the availability and productivity of the factors of production influence the demand for the factors of production?
The availability of the factors of production can change rapidly in factor markets
Many firms responded by searching for substitute factors of production so that they could continue producing goods/services
In some cases this meant switching demand from cheaper foreign imports to more expensive locally produced raw materials
If the productivity of a factor is high (or increasing), then the demand for that factor will also increase
What is Labour intensive production?
Labour-intensive means that the proportion of labour costs are higher than the other factors of production, including machinery
What is capital intensive production?
Capital-intensive means that the proportion of machinery costs are higher than any of the other factors of production, including labour
What are the benefits of labour intensive production?
Flexile working hours
Create a significant amount of employment opportunities
Low initial investment cost
Can quickly adjust to changes in demand and market conditions
Generate new ideas
Workers can build relationships with customers.
What are the drawbacks of labour intensive production?
Holiday , pay and working hours
Vulnerable o wage inflation or shortage of skilled labour
Human labour is less efficent than capital
Limited in ability to scale up production rapidly
Strike action can cause
Periods of low productivity
Non wage and wage benefits required
What are the benefits of Capital intensive production?
Doesn’t need to be paid
Can work 24 hours a day
Higher levels of productivity
Lower cost of production
Higher quality products
Allows for production of higher quantities of goods and services at lower costs per unit
Firm can reduce average costs benefit from technical economies of scale
What are the drawbacks of Capital intensive?
Machines break down which interrupts supply chains
Inital set up can be high
Consumers prefer hand made products
Most machinary cannot improve production process
Can be difficult for firm to respond to changing in consumer tastes which require product change.
What is productivity?
Productivity is a measure of efficiency that calculates the amount of outputs produced per unit of input
What are the influences on productivity?
Improvement in education and training which will increase the skills of workers
More capital equipment investment which will increase the speed and accuracy which workers or machines work at
Increase in wages which will motivate and incentivise workers to work harder
Lower working hours meaning workers less tired and less likely to make mistakes
better working conditions whch means workers are less stressed
Research and development meaning firms will discover quicker and more efficent methods of production
Better healthcare meaning workers are healthier and concentrate more at work
Specialisation means that working can concentrate on one particular task produce more products quickly and efficiently
