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FACTOR SUPPLY

Here, we understand the concept of Factor Supply to whole economy, Supply of factors to an particular industry in detail.

FACTOR SUPPLY
To understand the Concept of Factor Supply, we first need to understand about -
[1] Supply of Factors to the Whole Economy.
[2] Supply of Factors to a Particular Industry.
Now, we will discuss it one by one-
  1. Supply of Factors to the Whole Economy: It indicates three factors of production that is Land, Labour and Capital. we discuss about it one by one. [1] Land: According to Classical economists land is considered as free gift of nature and therefore it is said that its supply is fixed or perfectly inelastic in nature. There is no point in including all available area under supply of land. For example- In context of agriculture, we concerned only with the total supply of cultivable land and this supply is not perfectly inelastic. [2] Labour: Labour also important factor of production. Supply of labour implies total number of hours the people of a country are willing to work at a given wage rate. Supply of labour depends upon three things - (a) size of population, (b) ratio of working population to total production and (c) hours of work. Means, as wage increases, the supply of labour also increases. [3] Capital: Capital is man made factor and its supply consists of the stock of existing machines, plant, equipment, etc. During boom, addition to capital stock takes place. During slump, capital stock is reduced.
  2. Supply of Factors to a Particular Industry:
The level of speed with which factors move between uses in response to relative price changes is noted by factor mobility. Means, as the price of land increases in a particular use, its supply of land for that use increases. In economic term, land is highly mobile.
Some capital goods can be used for variety of purposes, therefore, it is mobile in nature.
Labour's mobility depends on many economic and non economic factors. Labour supply tends to increase in the long run in those occupations where wages are relatively higher.
It clearly indicates that, the supply curve of a factor in a particular industry or occupation is upward sloping, indicating that supply increases with price as shown in below mentioned figure-
Figure
As in figure, it clearly indicates that total supply available to particular industry that is OQ1 when its price OP1, it increases to OQ2 when price is OP2.
Factor Supply
Supply of Factors to the Whole Economy
Factors of Production
Land
Labour
Capital
Supply of Factors to a Particular Industry.
Marginal Productivity theory of distribution - Factor Supply.
Kinnari
Tech writer at NewsandStory
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