FOUR FACTORS OF PRODUCTION:

Natural resources: Natural resources are free gifts from nature.

Labour: Labour is all human effort, mentally and /or physically, provided by
people to earn a remuneration.

Capital: Capital are man-made resources that are used to produce more goods
and services.
Capital makes the production process easier.

Entrepreneurship: The entrepreneur is the person who takes the initiative to start the
business, organize its production and take risks.

NATURAL RESOURCES:

Definition:

Natural resources refer to the naturally occurring living and non-living elements of the Earth system – such
as water, land, plants, animals, ecosystems and minerals – that drive the economy and other human
activities.

Economic goods vs Free goods:

Free goods Economic goods

Are freely available in unlimited quantities, sea Are available in limited quantities, often
sand, sun light. insufficient to meet needs, e.g., coal, petrol,
electricity.
Does not command a price because nobody Command a price – Consumer must pay for it.
wants to pay a price for it.
Has value in use but no exchange value. Has both value in use value, and exchange
The owner does not benefit from it. value?
The owner benefits from having it.

It is not controlled by human beings. It is controlled by human beings.

The possession and use of free goods do not The possession and use of economic goods
indicate wealth or prosperity. indicate wealth and prosperity.
Examples of natural resources: Land, fishing, forestry and mining.

Renewable resources: Non-renewable resources:

A resource which can be used repeatedly and A non-renewable resource is a resource that
replaced naturally. does not renew itself at a sufficient rate for
Examples include oxygen, fresh water, solar sustainable economic extraction in meaningful
energy and biomass. human timeframes.
Examples include coal, gas, or fossil fuels and
nuclear fuels.

CHARACTERISTICS OF NATURAL RESOURCES:

Natural resources are scarce:

• Natural resources are scarce in relation to people’s demands and the quality needed in the
production process.
• There are not enough natural resources in the world of the required quality to make all things that
the people might want.
• Plants grow back relatively quickly, but it takes the Earth millions of years to replenish oil.

Natural resources have a price:

• For people to use natural resources they must pay for them.
• As an economic good, the remuneration (price/payment) for natural resources is rent.
• The rent will be determined by the quality and quantity of the natural resources.

Uneven distribution of natural resources:

• Natural resources are not spread equally across all countries e.g., S.A. has large deposits of gold
and other mineral resources, whereas Japan does not.
• The surplus of resources in one country and the scarcity thereof in another country lead to
international trade between countries.
• International trade will develop when one country exports excess products to countries, and imports
other items that are needed.
• Countries earn an income from exports and must pay for imports.

Adding value to natural resources:

• Most natural resources are not useful in their natural form.
• They need to be changed or transformed to make them useful for human consumption e.g., wood
must be transformed into furniture through a production process.
 IMPORTANCE OF NATURAL RESOURCES:

To serve as inputs to produce goods and services:

• No production is possible without the resources that come from nature, e.g., land, water, animals
and plants. E.g., oil is used to produce petrol and gas.

To provide opportunities for international trade:

• When a country has a surplus of a particular natural resource, they can export it.
• Countries who lack a particular natural resource can import it.

Agriculture, forestry and fisheries:

• Important part of S.A.’s economy.
• Provide in all S.A’s needs.
• Offers employment opportunities.

Mining:
• S.A. has a large variety of mineral resources of high quality and in substantial quantities.
• Gold provides the country’s largest mineral income – S.A. earns millions.
• Coal is the next most important and the mining industry employs thousands.
• According to the World Economic Forum (WEF), the mining sector must be seen as the most
important role-player in the future economic development in Africa.

REMUNERATION OF NATURAL RESOURCES:

Natural resources are remunerated with rent.

Factors that influence the price of rent:

supply and Climate

demand

Location quality of
resources
LABOUR

Definition:

• Labour includes all the work done by people, whether they are skilled or unskilled and whether they
provide physical or mental (thinking) work.
• Nothing can be manufactured without the inputs from people.
• Unemployed people are also considered to be part of a country’s labour force provided they are
willing and able to work.
• Intellectual property - When a person or company hires a designer, computer programmer, artist or
other independent contractor, the party that is hiring will own whatever work is created, including all
rights under any trademark, patent or copyright. Intellectual property examples would
include books, music, inventions and more.
 Classification of Labour

Skilled labour Semi-skilled labour Unskilled labour

Includes all people who have Includes people who have They have finished primary
passed Grade 12 and have at passed at least Grade 9 and school or have not been to
least two years of training at a have undergone a few months school at all.
tertiary institution. of in-service training. Their contribution to the
Economists call this group of E. g. clerks, plumbers and production process is mainly
people the professional class. salespeople – get a weekly physical.
E. g. teachers, doctors, wage. E. g. cleaners, domestic workers,
lawyers, dentist – get a monthly farm workers and newspaper
salary. sellers.
There is a shortage of these Receive a wage at the end of the
people in South Africa. day or end of week – no
guarantee of their work
continuing for longer than the
day or week.
In South Africa we have a
surplus of unskilled labour.

CHARACTERISTICS OF LABOUR:

Income as a goal:
• When people work, their goal is usually to earn money and secure an income.
• They need the money to buy goods and services to satisfy their needs and wants.
• The work learners do at school is not regarded as labour, as they are not getting paid for it.

Is part of its owner:

• Labour cannot be separated from its owner.
• The labour and the person doing the labour is one and the same.

Not storable:
• Labour cannot be stored or kept.
• If a worker is unemployed for 3 years, he/she has lost 3 years of providing labour.
• If a worker goes on strike for 3 days, then 3 days of labour are lost.

Supply cannot suddenly increase:

• Labour force made up of people between the ages of 16 and 64.
• It often takes a long time for people to enter the labour market.
• Education and training often take years to complete – then you can only start working.
ECONOMIC IMPORTANCE OF LABOUR

• Production cannot take place without physical and mental effort.

• An economy needs to increase its production in order to grow.
• It needs a suitable labour force in order to grow.
• The labour force needs to have the right number of skilled and semi-skilled labour available.
• Shortage of technically skilled labour is a big problem in South Africa.

REMUNERATION OF LABOUR

• Consists of salaries (per month) and wages (per week).

CAPITAL:

Definition:

• Can be defined as the money invested in machines and equipment that will be used in the
production process to change the form of materials into useful goods and services.

CHARACTERISTICS OF CAPITAL:

Capital goods are made by people:

• As a factor of production, it is manufactured or made by people.

Machines wear out:

• Machines wear out or break down over time.
• Depreciation takes place and businesses must be prepared for this

Money capital can be changed to any type of capital:

• Money capital can be changed into any type of asset the business wants to buy.
• It is easy to move money from place to place and to use it for various purposes..

Capital is expensive:
• Buying machine and other capital goods is very expensive.

FUNCTIONS OF CAPITAL:

Provides tools to add form utility:

• Tools are used to change resources into useful goods and services.
• Machines and tools are used in the production process.

Makes mass production possible:

• Machines are used to speed up production of goods.
• Machines can do work faster than people.
• More goods are produced; leads to greater demand, leads to increase in standard of living.

Improves the quality of products:

• Machines make less mistakes than people – less margin for errors.

Makes standardisation possible:

• Machines can produce goods that look the same and have the same quality.

Makes selling credit possible:

• Money capital allows retailers and manufacturers to sell their products on credit.
• Businesses can run into cash flow problems if they do not have sufficient money capital to fund
credit sales.
 ECONOMIC IMPORTANCE OF CAPITAL

Capital widening and deepening.

Capital widening: the stock of capital increases at the SAME rate as the workforce.
E.g., 2 workers: 1 shovel
4 workers: 2 shovels’

Ratio 2:1

Capital deepening: the amount of capital per worker increases so that the output per worker
increases.

E.g., 2 workers: 1 shovel

2 Workers: 2 Shovels’
Ratio 1:1

REMUNERATION OF CAPITAL:

• Interest
 ENTREPRENEURSHIP:

Definition:

• It is the process of bringing together natural resources, capital, and labour and using them to
produce or sell products or services.
• Are people who start, manage and control business – they take risks and make daily decisions to
ensure the successful running of the business.
• Start businesses to make money, and in the process, they create jobs, influence growth in the
economy and raise the standard of living.

CHARACTERISTICS OF ENTREPRENEURSHIP:

Combines the other factors of production:

• To produce goods and services to satisfy the needs and wants of consumers.
• Entrepreneurs need to source enough capital, natural resources and skilled labour at the right time
and place and the right quantities to make biggest profits.

Demonstrates initiative:
• The entrepreneur does things without being told. They are able to spot and take advantage of
opportunities that others pass by.

Takes risks:
• The entrepreneur is responsible for all losses if the business idea fails or if the business goes
bankrupt.

Makes decisions:
• Make decisions on what to produce, where to set up the business and who to produce for
• On quality and quantity, buy land or lease premises, buy stock or raw materials and which form of
ownership to choose.

ECONOMIC IMPORTANCE OF ENTREPRENEURSHIP:

• Plays an important role in contributing to growth and progress in any economy.

• Formal sector cannot provide employment to all; therefore, the informal sector plays an important
role in providing income and employment.
• Introduces new goods and services.
• Increases competition.
• Reduces inflation.
• Tax revenue of government increases.

REMUNERATION OF ENTREPRENEURSHIP:

• Profit
COMMUNITY PARTICIPATION IN LOCAL ECONOMIC PLANNING AND ACTIVITIES:

• Community forums, together with local government, can play an important role in development of
entrepreneurs through skills development, financial assistance and making the best use of natural
resources.
• Can help reduce unemployment, alleviate poverty and turn around a low regional growth rate –
Expanded Public Works Programme (EPWP), the Small and Medium Business Development
Corporation (SMBDC) and local chambers are examples.
• Local Economic Development (LED) create job opportunities and thus reduce poverty in local
communities.

ECONOMICALLY MARGINALISED GROUPS:

Description: marginalised groups:

• Marginalised groups are worse off relative to the rest of the population in terms of income, and non-
income, which include basic services like water, sanitation and electricity.
• They earn less income than the minimum income required to satisfy basic needs.
• They are largely unemployed, lack basic skills and cannot be trained because they are unable to
read or write.

Marginalisation as an outcome (causes/reasons for marginalisation):

• Apartheid in S.A. effectively excluded black people from participating in the economy, resulting in
income inequalities between races.
• In year 2000, the poorest 20% of household received 1,6% of total income of the country.
• Dualistic nature of S.A. has also excluded women from the business world.
• Material deprivation is also a most common result of marginalisation.

Empowerment:
• Since 1994 laws have been put in place to protect rights of all employees e.g., law of Black
Economic Empowerment and the Employment Equity Act of 1998.
• Affirmative action plays an important part in empowerment.
• Skills development with help of SETAS (Sector education and training authorities) in primary,
secondary and tertiary sector.