Answer: Supply: Supply means the quantities of a product offered for sale at different prices during a given period. OR Supply is an economic term that refers to the amount of a given product or service that suppliers are willing to offer to consumers at a given price level at a given period. Stock: Stock is the total quantity of commodity available in or near the market which can be brought for sale at a short notice. Reserve price: This is the minimum price below which a seller does not want to sell any quantity. Supply shifters: A change in the price of a good or service causes a change in the quantity offered by a movement along the supply curve. Supply changers include prices of production factors, returns of alternative activities, technology, vendor expectations, natural events and the number of vendors. Supply equation: The convention is for the supply curve to be written as quantity supplied as a function of price. The point on the price axis is where the quantity demanded equals zero.
Stock is the quantity of output which a seller/business has with him and has not yet been brought for sale.stock is the total quantity of commodity available in or near the market which can be brought for sale at a short notice.The stock the is fixed amount, which is not effected by the change in price.
where supply is the quantity of output brought from the existing stock of sale at a certain price in the market.Supply means the quantities of a product offered for sale at different prices during a given period of time.The supply increases with a rise in price and vice versa.
Q.3) Differentiate between the following:
a) Extension and rise in supply b) contraction and fall in supply
Answer: a) Extension and rise in supply: Extension in supply refers to the increase in quantity supplied due to the increase in prices. The contraction in supply refers to the decrease in quantity supplied due to the decrease in prices.
b) Contraction and fall in supply: When the price of a commodity falls its supply will be less. This is know as contraction of supply. With a decrease in the price of a good, the other determinants, of supply will remain constant. Fall in supply: When the price remains constant and the quantity supplied decreases due to other factors, it is called a fall in supply. i-e. such as the cost of production or taxes.
Q.4) Point out the causes, which bring about the rise and fall in supply?
Answer: Factors Affecting Supply rise and fall of supply: Besides price, there are many factors that affect the supply position. These factors (other things) can change with time, causing the supply curve to shift. Important supply shifters are the following. 1. Cost of inputs like raw materials and wages: Increase in cost of inputs causes fall in supply e.g. rise in prices of fertilizer may compel farmers to reduce the supply of wheat. 2. Technology: Supply may arise due to the use of new technology e.g. use of the computer may increase productivity. The use of tractor in agriculture has increased the supply of many agricultural goods. 3. Means of Transport: Supply may rise due to improved transport and communication facilities e.g. introduction of air cargo and internet services. 4. Taxation: Increase in taxes on commodities (such as sales tax) may cause fall in supply e.g. if the government increases the tax on cement, the quantity of cement supplied previous prices will fall. Sales tax and excise duty shift supply curve leftward. 5. Weather Conditions: Favorable weather conditions or timely rains cause an increase in the supply of many goods. Weather is particularly important for agricultural products. 6.Trade Routes: War can reduce supply Factories may close down and trade routes become unsafe. 7. Industrial Policy: A favorable industrial policy which increases concessions and facilities for some industry may cause a rise in the supply of its products. 8. Prices of substitute products: This affect the supply of a good. For example, the supply of wooden chairs is affected by the prices of substitutes such as steel or plastic chairs. 9.Increase in number of producers A number of Producers Increase in number of producers of a commodity can cause a rise in supply. e.g. an increase in a number of mobile-phone companies resulted in more connections available at the current rate of calls. 10. Expectation about Future Prices: If producers expect the lower or higher prices of their product in the future, they adjust their production plans accordingly. If farmers expect the prices of potatoes to fall in the coming season, they will produce and sell less potatoes.
Q.5) What do you understand by elasticity of supply? How is it determined.
Answer: Elasticity of supply: The degree of responsiveness of supply of a commodity to change in its price. When a small rise in price causes a large expansion in supply (or when a small decrease in price leads to a large contraction in supply), the supply of the commodity is said to be elastic. On the other hand, if supply shows little variation in response to a given change in price, the supply is known as inelastic MEASUREMENT: The general rule for measuring elasticity of supply is
Q.6) Describe the practical importance of the concept of Elasticity of Supply.
Answer: Price elasticity of supply measures the relationship between change in quantity supplied and a change in price. • When Pes > 1, then supply is price elastic • When Pes < 1, then supply is price inelastic • When Pes = 0, supply is perfectly inelastic • When Pes = infinity, supply is perfectly elastic following a change in demand The numerical value of elasticity of supply can be calculated by the following two methods. It will always be positive. A. Mathematically B. Geometrically
Q.7) Explain supply function and supply equation.
Answer: Supply Function or (Functional equation of supply): Functional equation of supply shows the relationship between market price of a commodity and quantity offered for sale. Method of production (m) Sale price of the product (P) Prices of inputs (Pi)
Economics Chapter #6 (Market Equilibrium) | Class 11 Notes for kpk
Q.1) What is the Market Price? How is it determined?
Answer: Market price is the economic price for which a good or service is offered in the marketplace. It is of interest mainly in the study of microeconomics. Market value and market price are equal only under conditions of market efficiency, equilibrium, and rational expectations. Determination of price: Prices of commodities are determined by the interaction of two cakes “demand and supply. Demand has an inverse relation with price i.e. when the price rises, less quantity is demanded. On the other hand, supply has a direct relation with price s price increases, more quantity is supplied. It is the equality of these two forces which settles the price of a commodity at a level in the market. If at any time, the quantity demanded and quantity supplied are not equal, price starts moving me the movement of while a rise in price contracts demand and expands supply. The movement of price, upward or downward, continues till such a price is reached at which demand becomes just equal to supply. This is called equilibrium price.
Q.2) Differentiate between price determination in perfect Competition and Monopoly.
Answer: Perfect competition: The market structure in which there are numerous sellers in the market, offering similar goods that are produced using a standard method and each firm has complete information regarding the market and price, is known as a perfectly competitive market. The entry and exit to such a market are free. It is a theoretical situation of the market, where the competition is at its peak. Monopoly: Monopolistic Competition refers to a type of market structure, where the number of sellers selling similar but not identical products, is large. The product or service offered for sale in monopolistic competition is close substitutes for one another.
Monopolistic Competition refers to a type of market structure, where the number of sellers selling similar but not identical products, is large. The product or service offered for sale in monopolistic competition is close substitutes for one another.
Key Differences Between Perfect Competition and Monopolistic Competition
The basic differences between perfect competition and monopolistic competition are indicated in the following points:
A market structure, where there are many sellers selling similar goods to the buyers, is perfect competition. A market structure, where there are numerous sellers, selling close substitute goods to the buyers, is monopolistic competition.
In perfect competition, the product offered is standardized whereas in monopolistic competition product differentiation is there.
In perfect competition, the demand and supply forces determine the price for the whole industry and every firm sells its product at that price. In monopolistic competition, every firm offers products at its own price.
Entry and Exit are comparatively easy in perfect competition than in monopolistic competition.
The slope of the demand curve is horizontal, which shows perfectly elastic demand. On the other hand, in monopolistic competition, the demand curve is downward sloping which represents the relatively elastic demand.
Average revenue (AR) and marginal revenue (MR) curve matches with each other in perfect competition. Conversely, in monopolistic competition, average revenue is greater than the marginal revenue, i.e. to increase sales the firm must lower down its price.
Perfect competition is an imaginary situation which does not exist. Unlike, monopolistic competition, that exists practically.
Q.5) Differentiate between market price and normal price. How they are determined.
Answer: 1) The market price is the price that prevails in the market at, any moment due to the temporary equilibrium of the forces of demand and supply. The normal price, on the other hand, is the price that tends to prevail in the market in the long run. it is the result of a long-run equilibrium between demand and supply. 2) The market price is the result of temporary causes and passing events that influences demand and supply or both; whereas normal price is affected by persistent and permanent causes in the long run. The market price oscillates around the normal price. 3) The market price is the actual price that prevails in the market at any particular moment but this is not the case with the normal price. The normal price in actual practice seldom prevails in the market, because in the long run, a change takes place either in demand or in supply conditions. In fact, the long-run normal price like tomorrow you never eat 4) In a very short period, the cost of production has no effect on market price but in the long run, the normal price must be equal to both the marginal cost and the minimum average cost.
Answer: Demand function shows the relationship between price and quantity demanded. At different prices in the market, the people are willing to buy different quantities. When price is less, people demand more and vice versa.
Q.8) Explain the functional equation of supply.
Answer: Supply Function Sx = f(px, pf, o ………. T, t, s) The supply function is the mathematical expression of the relationship between supply and those factors that affect the willingness and ability of a supplier to offer goods for sale SX = Supply of goods PX = Price PF = Input factor employed (used) for production. (Raw material, Human resources, Machinery) O = Factors outside the economic sphere. T = Technology t = Taxes. S = Subsidies
Economics Chapter #7 (Production and Production Function)
Q.1) Define the terms: Production, Productive activities, Production function, Inputs, Output, Land, Intensive cultivation, Natural resources, Productivity of land, conservation of land, Recycling.
Answer: Production: Production refers to all activities undertaken to provide goods and services for satisfying human wants for which people are willing to pay a price. Productive Activities: Production activity is defined as including activities that have economic value in the marketplace. OR The productive activity includes any activity that produces a valued good or service, even if it is not actually paid for. Production function: The relationship between the quantity of factor input and the quantity of the resulting output is called a production function. Inputs: The factors of production, resources, or inputs are what is used in the production process to produce output. Output: The “quantity of goods or services produced in a given time period, by a firm, industry, or country,” whether consumed or used for further production. Land: The term land means all the free gifts of nature (natural resources) available for human use. Intensive Cultivation: Increasing agricultural output by bringing new lands under cultivation is called intensive cultivation. Natural Resources: Natural resources are resources that exist without the actions of humankind. such as rivers, lakes, fisheries, forests, mountains, oceans, minerals, sunlight, climate and rainfall. Productivity of Land: The productivity of land is defined as the output obtained from land divided by the area of that piece of land. Conservation of Land: Land conservation concerns the flow of water resources across agricultural land (which can cause flooding and landslides) and the loss of soil sediment from agricultural land into rivers, lakes, and reservoirs. Recycling: Recycling is the process of converting waste materials into new materials and objects.
Q.2) What is production? Explain its importance.
Answer: Production: Production refers to all activities undertaken to provide goods and services for satisfying human wants for which people are willing to pay a price. Production takes place in two forms. a) Production of goods b) Supply of Services.
Importance of production: The aim of all economic activity is the consumption of goods and services but consumption is possible only if goods and services are produced. If people or nations want to raise their standard of living, they will have to produce more quantity of goods and services. A nation that patronizes idle classes like beggars, jagirdars, so-called peers, agents and social parasites that live on other’s production and incomes, can have little hope for economic prosperity. In the modern world, only those nations, who produces more, respectable status. Japan is a smaller country than India and Russia. But because its production is much greater than these countries, it is ahead of them and is an economic superpower. If Pakistan wants economic prosperity, it will have to produce more. Pakistan has vast natural resources. Those need to be utilized for production. For this purpose, we will have to change social and economic environment so that people willingly make greater productive efforts and so earn more income. The ratio of non-productive elements in society must be reduced.
Q.3) Define four factors of production. Explain their relative Importance.
Answer: The four factors of production are a) Labor b) Land c) Capital d) Entrepreneurship Labor: Nothing can be produced without human labour. In general, by labour we mean the work done. But in economics, this second factor of production has a broader meaning. Labour means any physical or mental effort of human beings for some monetary reward. LAND (Natural Resources): The land is the basic resource without which nothing can be produced. The term land means all the free gifts of nature (natural resources) available for human use. This includes a land surface for farming or building, soil, minerals, forests, mountains, deserts, rivers, seas, location, climate, etc. Capital: All man-made things which help in the production of more goods L and services are known as capital. Thus all types of buildings (houses, workshops, offices, factories, shops, roads, etc), equipment, machinery, tools, motors, engines, computers, transport goods, tractors, and raw material are called capital. Entrepreneurship: An entrepreneur is a person (or group of persons) who plans and undertakes the production of goods and services. He hires the services of other factors (land, labour, and capital) and combines them in good proportion to get maximum output. He supervises all productive activities including the marketing of his product. It is the entrepreneur who faces the uncertainty of business and takes responsibility for success or failure. Relative Importance of Factors: An act of production always involves all four factors of production. If the services of any of these are missing, the whole productive process fails. However, economists think that, basically, there are only two factors; land (nature) and labor (man). Nothing can be produced without people. Similarly, natural resources are required for people to live and work with. Capital and organization are the results of the services of land and labor. If we investigate the role of factors of production from the historical perspective, we find that the relative importance of various factors has changed over time. In the early period of civilization when human needs were very simple, they were easily fulfilled from the land by applying a little labor. For instance, a person could get burning wood and drinking spring water without much effort. With the passage of time, the relative importance of labor increased because the land available to mankind became scarcer and human needs grew more sophisticated. For instance, a comfortable house needed more labor content than a simple hut. After the Industrial Revolution, “when the productive process became complex, the importance of capital increased. Manufacturing machines, the building of roads or houses and the construction of dams involved a huge amount of capital. So much so that the countries which accumulated capital, started dominating the economies of the world The superiority of Europe and America in the economic field during the past two centuries has been due to the huge amount of capital available there. In the new era of the 215 centuries, with several people rising fast, the total demand for goods has grown manifold. As a result, scarcity of resources is felt more than ever. At the same time, competition in producing and marketing of goods and services has also increased. To meet this difficult situation, optimum utilization of the first three factors of production (land, labor, capital) is required more than in the past. To produce goods in greater quantity and at a lower cost, combining the factors in correct proportions is very important, this motive highlights the key role of the organization in the modern environment of business and industry. An efficient organization is the mainstay of banking, marketing, and other financial or commercial practices.
Q.4) Explain the meaning and characteristics of the land as a factor of Production?
Answer: LAND (Natural Resources) The land is the basic resource without which nothing can be produced. The term land means all the free gifts of nature (natural resources) available for human use. This includes a land surface for farming or building, soil, minerals, forests, mountains, deserts, rivers, seas, location, climate, etc. The land has some Special Characteristics:
It is a gift of nature and has no cost of production
Its total supply is fixed.
It lacks geographical mobility.
The land is a passive factor. Labor is required to put land to productive uses. Those countries which have an abundance of land (natural resources) have better chances for economic development.
Q.5) Write a note on extensive and intensive methods of cultivation.
Answer: When the population in a region rises, the requirement of food and other farm goods expands. To deal with the situation, two alternative methods can be used. a) Extensive Cultivation b) Intensive Cultivation
Extensive Cultivation Increasing agricultural output by bringing new lands under cultivation is called intensive cultivation. The method is applicable in a country where, compared to labor and capital stock, the land is abundant and cheaper. For instance, Australia and Canada. In Pakistan, this method has been used in the past. Our total area under cultivation has increased due to the expansion of irrigation canals and the installation of tube wells on a large scale. Construction of Taunsa Barrage, Guddu Barrage, and Sukhar Barrage, with a network of canals, provided new land for cultivation. Now, the scope for extensive cultivation has decreased, although some areas of land are still lying unused for lack of irrigation facilities. So, the scope of extensive cultivation is limited. In the past, Pakistan suffered from the twin diseases, water logging and salinity, which affected millions of hectares of fertile land reducing its productivity. The government of Pakistan, through WAPDA, made a number of plans for reclamation of the affected land, Drainage channels were dug and tube-wells were installed to keep water level low. By preventing deforestation and soil erosion Pakistan can save some valuable land for agriculture. Intensive Cultivation Intensive cultivation means an increase in agricultural output by increasing productivity of existing cultivated area through use of more capital, labor and other form inputs This method is more suitable for countries like Pakistan where cultivable land is less abundant. There, the man-land ratio is high and chances for extensive cultivation are limited. For example, the whole of Europe and Japan are thickly populated. New lands are not available for cultivation. They have increased agricultural output through intensive use of lands. In this method, more and more quantity of capital and labor, machinery, fertilizer, improved seeds, better irrigation facilities and plant protection efforts are applied.
Q.6) What factors determine the productivity of land?
Answer: The productivity of land is a relative term, depending upon many factors. These are: 1. Natural Factors Theseare the most important factors in determining the productivity of the land. Some lands have more fertile soil and better rainfall are naturally more productive e.g. the lands in Punjab have higher productivity. 2. Human Factors: Land itself is a passive element. It is the quantity and quality of human labor applied that determines land productivity. 3. The use of Capital: Capital in the form of agricultural tools, fertilizers, etc. increases the productivity of the land. In an intensive form of cultivation, more capital is used to increase yield per hectare. 4. Ownership of Land: Land owned by very big landlords cannot be properly cultivated. Too small farms also have low productivity. The productivity of medium-sized farms will be higher because it can be better managed and are suitable to the use of modern machines. 5. Means of Transport: This also determines the productivity of the land. If the network of roads is available for farmers to bring inputs and sell their products in the markets, the productivity of land will be higher. Lands not easily approachable are less productive. 6. Location: Better located lands i.e. near the markets, around towns having an easy approach, bring more revenue. Some commercial property at famous business centers like the Mall Lahore, Sadar Rawalpindi or Karachi will be highly productive. 7. Man Behind the Plow (farmer): The productivity of land is closely linked to the efforts of the person working on it. If the farmer is intelligent, educated, expert and expects a fair reward for his labor, he would apply his full capability and raise the productivity of the land. 8. Properly conserved lands have higher productivity.
Q.7) Discuss the role of natural resources (land) in the process of production.
Answer: Land, as a gift of nature and the prime factor of production, has the following important characteristics. 1. Gift of Nature Land is available to mankind without human effort. It has no cost of production. All resources of land exist even if there is nobody to utilize them. “ 2. Fixed Quantity and Inelastic Supply Total supply of land are limited. Human effort cannot change its quantity. Using labor and capital, some wasteland may be reclaimed, or by clearing forests and diverting rivers more land may be made available for a particular use, still, the total supply of land will not be much affected. 3. The land is Permanent Man-made resources like machines and buildings are perishable, but the land is not destructible. However, some resources like minerals, oil or gas fields, natural forests, etc. May be exhausted. 4. Land is Immovable (immobile) Land cannot be transferred from one place to another. Only its products can be taken anywhere. Ownership and use of land may be shifted but the location remains fixed. 5. Land differs Infertility and productivity: Some regions possess a greater quantity of natural resources than others institution and location. Some lands are better situated e.g. they lie nearer to town markets, business centers, main roads, etc. 6. The land is Passive Factor Land and resources: It contains, have a passive role in the production. It is with the help of labor only that natural resources become usable. 7. The productivity of land can be increased by the application of labor and capital. 8. It needs conservation: Since coal and iron ore, oil or natural gas, etc. cannot be replaced, efforts are needed to conserve them.
Q.8) Mention four Natural resources that are Exhaustible.
Answer: Four Natural resources that are exhaustible
Non-renewable: fuels (coal, oil, gas) topsoil
Exhaustible Natural resources such as chemical deposits
Exhaustible Natural resources such as wilderness, natural beauty sites,
Exhaustible Natural resources such as some rivers and lakes, clean shorelines.
Q.9) Write a note on the need for recycling.
Answer: “In recent years the world has become dramatically aware of the fact that the supply of many natural resources is strictly limited e.g. mineral resources, especially energy resources. Modern civilization is based upon excessive utilization of non-replaceable minerals and fuels. Raw materials such as cotton, wool, timber, and foodstuffs are replenish able, but others such as coal, iron ore, oil, and natural gas cannot be replaced. A rapidly rising world population together with demands for higher standards of living have led to a growing awareness of this problem. It has been calculated that the American standard of living – requires an annual consumption per head of about 30 tons of fuels, minerals, other materials, and nonmetallic building materials – most of it coming from non-replaceable resources. So far 2/3 of the world population is underdeveloped and their requirement of materials is much less than the needs of present American society. But the situation can take an alarming turn when the developing countries succeed in achieving higher living standards. The prices of various resources are already rising as they become more scarce. At the present rate of oil extraction by Saudi Arabia and some other countries, the time is not far off when they deplete this important resource and their fields become hollow underneath. The above-mentioned circumstances indicate that humanity must be immediately and seriously concerned about the conservation of natural resources. This does not mean that we should refrain from using them, but that we should use them much more efficiently and less wastefully. Every effort must be made to get a greater value of output per unit of input of these deplete-able resources, and more attention must be paid to schemes for the recovery of such materials for future use – recycling of materials. Moreover, the conservation of resources cannot be left entirely to market forces. The governments must be directly involved in this matter. “G.F.S Since the disposal of waste products involves little or no private cost to either consumers or producers, society disposes of too much waste material. The over-utilization of virgin materials and under utilization of recycled materials will result in a market failure that requires government intervention. In Pakistan, people are little aware of the urgent need for recycling. To see how recycling incentives can work, consider a typical household’s decision with respect to the disposal of glass bottles. In many communities, households are charged a fixed annual fee for trash disposal. As a result, these hosts can dispose of glass and other garbage at very low cost-only the time and effort to put the materials in the trash bin.
KPK G11 Economics Chapter #8 (Human Resources)
Q.1) Define the terms.
Labor, Efficiency of labor, Mobility of labor, Labor force, Human resources, Unemployment, Overpopulation, Optimum population, Productive work, Bargaining power of labor, Productivity of labor, Human capital, Social mobility, Vertical mobility.
Answer: Labour: Labour mean all human efforts of body or mind which are under taken for material reward. Efficiency of labour: Efficiency of labour means the output per worker per unit of time. Mobility of labour: The ability and capacity of a laborer to change over to new job new position or shift to a different place of work without much difficulty. Labour Force: The labor force, also called workforce, is the population of able-bodied, willing people who are currently employed or looking for work. Human Resources: Human resources are used to describe both the people who work for a company or organization and the department responsible for managing resources related to employees. Unemployment: Unemployment occurs when a person who is actively searching for employment is unable to find work. Overpopulation: Overpopulation is the state whereby the human population rises to an extent exceeding the carrying capacity of the ecological setting. Optimum Population: The optimum population is a concept where the human population is able to balance maintaining a maximum population size with optimal standards of living for all people. Productive work: Productivity is a term referring to how much work is accomplished in a work environment. Bargaining power of labour: Bargaining Power is the ability of enterprises or workers to get what they want. Productivity of labour: Workforce productivity is the number of goods and services that a group of workers produces in a given amount of time. Human Capital: The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country. Social Mobility: Social mobility is the movement of individuals, families, households, or other categories of people within or between social strata in a society. Vertical Mobility: Vertical mobility refers to a person or group’s movement up or down a status hierarchy.
Q.2) What is labor? What are its important characteristics?
Answer: Labor: Labor mean all human efforts of body or mind which are undertaken for material reward.
Characteristics of Labor Labor, as a factor of production, differs from other factors in many respects. It has some special features. 1. Labor is perishable more than the other factors. Labor cannot be stored or postponed. If some working time is lost it is lost forever. This limitation keeps the workers under constant fear that they may not become jobless even for a single day. 2. It cannot be separated from the laborer. Land and capital can be separated from the owner. They can earn income for the owner even if he is far away e.g. the land or bus is in use at Multan while the owner may be in Islamabad. But for labor, the situation is different e.g. a driver in order to do the work of driving at a bus has to be present there. 3. Less mobile Labor, generally, is less mobile than capital. Laborers do not readily shift places. Change of profession is also difficult. Whereas it is easy to buy a taxi from Karachi and use it in Islamabad, it is difficult to make a taxi driver agree to shift to Islamabad. 4. Weak bargaining power Since labor cannot be stored, the laborer fears to go unemployed. Compared to the employer, his position to settle the terms of work is weak. Moreover, workers are generally poorer. They have no reserve wealth. They are in urgent need to earn something. Employers and pay lower wages. 5. The laborer is a human being and not a machine A laborer cannot be treated like a machine, which has no feelings or habits. I need rest and recreation. If he is not treated properly, he may refuse to work or deliberately do something damaging. If the working atmosphere is friendly, he works harder and puts greater effort into the job. 6. Difficult to find the cost of production of labor. Unlike machines, it is difficult to calculate the cost of production of labor. Suppose a doctor with 17 years of education and 10 years of experience examines a patient for a few minutes and charges Rs. 2000 as a fee. We cannot say what it costs the doctor to provide 10-minute medical advice. Compare it with buying a chair. If we pay can find the cost of production of the chair and see if the seller is charging excessive profit. 7. Labor is an active factor Land and capital are passive factors and can produce goods only when labor is applied. ‘ So the management of labor in a factory is more important and difficult than the managing of machines and materials. Productivity (and efficiency) of both land and capital depends upon the efficiency of labor. (During the 1950s and 60’s the economists thought that for the rapid economic development of a country, an abundance of capital is the most important requirement. But soon they realized that human capital ie educated, trained, skilled, motivated and dedicated labor was more important than capital or natural resources Now in all modern economic planning, the key role is allotted to human resources. 8. Labor creates capital A laborer works and gets income. If he saves a part of his earning that becomes capital. So we can say that capital is an accumulated form of labor. (Every machine is the product of past human labor use of muscle power and mental effort, 9. Dual Role Labor is not only a factor of production, but it is also the reason. the economic activity takes place. Laborers are consumers and buyers of goods as well.
Q.3) Define the efficiency of labour. On what factors does it depend?
Answer: Efficiency of labour: Efficiency of labor means the output per worker per unit of time.
FACTORS INFLUENCING EFFICIENCY 1. Personal Qualities of the Worker a) Hereditary and personal qualities like intelligence, honesty, and disciplined habits increase the efficiency of a worker. Good health directly affects efficiency. b) Motivation If a person feels job satisfaction and gets a good salary, he is motivated to work efficiently. c) Education and Training make an illiterate and untrained worker more efficient. Experience increases efficiency the proverb “practice makes a man perfect” d) Standard of living. A resourceful person can acquire better mental and body abilities. his efficiency will be higher than a poor worried person.
2. Working condition and wages level: a) The working environment affects efficiency. If the workplace is spacious, calm and quiet, has ventilation, lighting, refreshment and rest facilities, the efficiency of labor will be higher.” b) Division of labor (Specialization) When work is split into parts or stages and each worker has to do his part only, productivity per worker increases. By concentrating on a few tasks people become experts and specialists.” c) Machines and better equipment increase the productivity of labor. A tailor can or more shirts in a given time if he uses an electric sewing machine instead of a hand-operated one. An accountant can do more work on a computer. d) Higher wages and good terms of employment promote efficiency. If employees get a share in profits (or bonus) they increase efficiency. A low paid worker cannot put his heart into the job. e) Good chances of promotion or reward provide the incentive to the workers to work harder and improve productivity.
3. Social and Political Conditions a) Social Conditions If a society gives much weight to caste, creed or sect system, the efficiency of workers will be lower. There is less cooperation between persons belonging to different groups. Due to social barriers, people do not find scope for the best use of their abilities. b) Political stability and peace People work whole-heartedly only when they feel security and safety for them and their families. (A strong reason for low productivity of Pakistani workers is the disturbed political atmosphere and irresponsible statements by so-called political leaders).
4. Employer-Employee Relations a) Personal and friendly relations of employers with the workers and encouraging attitude increases labor efficiency. If an employer involves workers in decision making, they try to be more responsible and efficient.
Q.4) Explain the meaning and merits of the mobility of Labour.
Answer: Mobility of labour: The ability and capacity of a laborer to change over to new job new position or shift to a different place of work without much difficulty. Merits of the mobility of labour: The mobility of labour has a close relationship with the productivity of labour and the proper utilization of a country’s resources. i) Greater occupational mobility helps to provide the right jobs for the people they can choose the occupation of their liking and prove more efficient ii) Vertical mobility provides inducement and incentive for people to work harder and improve their skills. iii) Horizontal mobility reduces the chances of unemployment. Workers move to places where jobs are available. The chances of over staffing at one place and jobs lying vacant elsewhere decrease iv) Geographical mobility helps in the balanced development of various regions. The resources of different areas are optimally utilized. v) Social mobility helps to create a harmonious society. It reduces tension and bitter feelings among various classes and groups. It promotes the unity of the nation. There are so many advantages of the mobility of labour that the governments must take various steps to encourage mobility. The more a country is developed economically, the more mobility of labour will take place. Mobility lends elasticity to the economic system. Disequilibrium between demand and supply of labour anywhere in the economy is quickly removed.
Q.5) Critically examine the Malthusian Theory of Population. Is it applicable to conditions in Pakistan?
Answer: In order to decide whether Malthusian Theory applies to the present conditions in Pakistan or not, we must firstly investigate the basic facts of population in Pakistan. 1. Pakistan’s total population is 210 million. It is six times of population in 1947 and it has doubled during the past 30 years. The rate of increase is 1.9%, which is higher than the world average. 2. Pakistan falls among the poorest countries in the world. 3. The birth rate is high while the death rate has fallen low. So the population is growing fast. 4. The health of our people is poor. They are suffering from diseases because they get insufficient food and poor health care. 5. The shortage of housing, water supply, electricity, and poor transport and sanitary conditions facilities is our permanent problem. This shows that the population is growing faster than we can manage. 6. The literacy rate in Pakistan is only 60%. 1/3 of our children are still out of school. 7. Widespread unemployment and underemployment indicate signs of overpopulation. The working population is only 33%. 8. Time and again serious shortages appear in the supply of essential commodities such as wheat, sugar, fuel, and cement, etc. 9. There is an all-round deterioration in the environment. Air and water are polluted. Water shortage is becoming a permanent problem. Trees have been cruelly cut from hills and natural forests. Wildlife and natural beauty is disappearing in many ways the balance between man and nature is being destroyed.
Q.6) Explain the optimum theory of population. Compare it with the Malthusian theory.
Answer: OPTIMUM THEORY OF POPULATION: The optimum theory of population was given by Cannan. Earlier, the economy was dissatisfied with the Malthusian theory of population which compared only food availability and population growth. The Malthusian theory explained only a general fact that the population grows faster than food supply, but it is of little help to formulate a definite population policy for a country. The optimum theory is better in the sense that it tells. what level of the population a country should try to maintain. Optimum population refers to the best desirable and ideal size of the population which a country should have. Optimum population, when combined with currently available natural resources, capital stock, and technology, ensures the highest possible per capita income for the people. Rising of the population above or falling below the optimum level will decrease per capita income. Determination of the optimum size of the population. A country can face three possible situations. a) Overpopulated b) Underpopulated c) Ideally populated Overpopulation is indicated if an increase in population causes a fall in per capita income. Such a country must take steps to control population growth. Under population is indicated if an increase in population can raise per capita income. To properly use the country’s resources more persons are needed. A country is ideally populated (or optimally populated) if both increase and decrease of population create a negative effect on the level of per capita income.
Compare optimum theory of population with the Malthusian theory A) The optimum theory is considered superior for the following reasons: i) The Malthusian theory is a general study of population problems. The optimum theory depends upon the economic conditions of a country. ii) Malthus had a narrow vision. He related the growth of population to food supply only iii) It is difficult to make a practical (dynamic) population policy based on Malthusian theory. According to optimum theory, neither increase nor decrease in population is itself undesirable. The population should be managed according to the availability of resources. iv) Unlike Malthus who stressed the biological fact about the human birth rate and food production, optimum population theory includes economic factors.
Q.7) Define labour force. Write a note on problems of labour Force in Pakistan
Answer: Labour Force: The labor force, also called workforce, is the population of able-bodied, willing people who are currently employed or looking for work.
A summary of problems faced by Pakistani labor force is as follows: i) Poverty (the root cause of many problems) ii) Unemployment iii) Low productivity and efficiency iv) Low wages v) Unsatisfactory working conditions vi) Lack of mobility vii) Unorganized labor (lack of trade unions) viii) Low social status ix) Social insecurity (no protection against unemployment, disease, etc.). Unemployed and underemployed labor force means wastage of human resources. Unemployment also creates social and political unrest. In Pakistan, the open unemployment rate is above 6% (and if concealed (disguised) unemployment and underemployment is included it is not less than 10%). Measures like rapid industrialization and the promotion of small-scale industry can help to reduce unemployment. The decrease in the growth rate of the population has also a positive effect on the employment situation. Labor force is a heterogeneous group of people. In Pakistan, on the one side, we find people who are highly trained, experienced and specialists in their fields. But on the other side, there is a high percentage of the illiterate and unskilled population, which limits the productive potential of labor force. Thus, we need to give more attention to skill formation through literacy and vocational training. When more people get technical education, the national output will go up. The efficiency of labor force depends upon the use of machines and other forms of capital. So we must accumulate capital. Another factor needs attention. There are many women who have nothing to do. Our social and economic system is such that job opportunities for these women are very limited. Through female education and skills, change in social values, motivation and various other schemes, we can bring more women in the working group.
Q.8) What is unemployment? What are the causes of unemployment in Pakistan? How this evil can be eliminated?
Answer: Unemployment: Unemployment occurs when a person who is actively searching for employment is unable to find work. Causes of Unemployment in Pakistan 1. Poverty and unemployment are twins. A poor person has fewer chances of finding employment or creating self-employment. And on the other hand, poverty is the destiny of the unemployed. Since poverty is widespread in Pakistan, so the result is unemployment. People don’t have resources to set up some business or industry. 2. Rapid Population Growth Pakistan’s population is growing fast at a 2% rate which is one of the highest in the world. About a million new people are entering the job market each year. On the other side, expansion in employment opportunities is not enough to absorb all the new job seekers. 3. The scarcity of Capital is needed to put people to work. Employment opportunities cannot be expanded unless tools, equipment, and materials are available in enough quantity. But there is a serious shortage of capital in Pakistan. Capital is created through investment. However, due to our limited saving capacity, 40 rate of investment remains low. 4. Mechanization of Agriculture and Automation in Manufacturing Rural population is getting unemployed. A tractor and tube well displace scores of people. Surplus agricultural labour seeks employment in urban centres. In industries, the use of automatic machinery and computers reduce the need for workers. 5. Slow Industrial Development Due to various economic, social and political reasons industrial progress is slow. Enough jobs are not created to absorb surplus labour. Loans are misused. Instead of establishing industries. People get loans written off through political influence. 6. Imbalance in Education Most of the students opts for general education. They want to get some white-collar jobs in an office. They are not interested in vocational training. As a result, when they leave educational institutions, they have degrees but no work training. 7. Capital Intensive Industries Modern large and medium-sized industries are capital intensive i.e. they need huge funds, but fewer human hands. 8. Biased Attitude for Public Sector Employment Government job has more prestige than a similar job in the private sector. People prefer to become an office clerk than to work as a private electrician. But the government cannot employ every job seeker. 9. Seasonal unemployment occurs in agriculture and some other industries like the fan and air-cooler industry.
How this evil can be Eliminated 1. Population Control This is the single most important method to reduce unemployment. 2. Capital Formation is a basic requirement for economic development to increase capital accumulation, savings should be encouraged. Foreign capital also helps to undertake new projects. 3. Rapid Industrial Growth Capacity of agriculture to absorb labor is limited. The final solution for unemployment lies in slow population growth as well as the rapid expansion of the industry. 4. Small Scale Industries are more labor intensive, so in industrial policy, the development of such industries should be encouraged. 5. Technical Training and Skill Formation should be given special attention in development strategy. 6. Self-employment: Through suitable financial schemes, self-employment be encouraged in the form of small businesses, workshops, clinics, etc. 8. Diversification of Agriculture Instead of concentrating on formal crops, activities allied to agriculture should be expanded e.g. dairy, poultry, fish and bee farms, processing of foods. 9. Change in Social Attitudes People’s attitude towards work and manual labor needs change. Manual labor is given due respect, People would not hesitate to adopt it. 10. Government Policy Various government programs like Khushal Pakistan and People’s Works Program help to create many jobs because they concentrate on small projects. SMEDA (Small and medium enterprises development authority) was established to promote small business and increase employment opportunities.
Q.9) Is Pakistan overpopulated? If so, what measures do you suggest overcoming this problem?
Answer: It is not difficult to conclude that Pakistan is in the grip of the population explosion. To secure a good future for our people, the population problem must be solved. We can adopt two courses of action to achieve the objective. a) Control through population planning. b) The rapid increase in agricultural and industrial production to raise per capita income. The most important part of the population policy would be to reduce the birth rate. The death rate has already fallen, so unless the birth rate comes down, we are bound to be caught up in the “population explosion.” A systematic program of population planning is the solution. In this connection, the following steps are suggested.
Increasing literacy rate; since educated couples like fewer children.
Spreading female education; since it reduces many superstitions of women about family planning. Increasing employment opportunities for the poor to increase their living standards. Provision of social security and old-age benefits. Many people expand family since they expect that children will help them in old age.
Late marriages, so that there are fewer children per marriage. Ban child marriage.
Using safe contraceptives which modern science and technology have provided.
Popularizing the idea of small family and publicizing the miseries of large families.
Removing religious and medical misunderstandings of people about birth control.
Improving the status of women, so that they are not considered simply as childbearing machines.
Providing education, advice, and facilities about family planning in clinics.
Providing incentives for small families through tax concessions.
Q.10) Identify from the worker’s point of view, the advantages of the division of labor.
Answer: Division of Labor and Specialization: A very important feature of modern production methods is the fact that a worker almost never makes a complete product. Each worker contributes a small part to the production of some article or the provision of some service. Labor is divided in the sense that the production process is split into a very large number of individual operations. And each operation is the special task of one worker. A TV set reaching the final buyer may be the result of hundreds of separate operations of workers. The process of division of labor lies at the heart of the modern exchange economy. The earlier people on earth tried to provide all their daily wants by their own efforts. They could produce only a bare minimum for survival. Slowly in community life, some degree of specialization was adopted and the total output was much greater than the sum of their individual outputs done independently. The process of division of labor has increased tremendously with the advancement of technology and large-scale production. Division of labor increases skills saves time and satisfaction of the workers because they get a job according to their aptitude. Now a day it is inconceivable that anyone can provide himself for all of his wants directly. High living standards of modern societies are the result of increased productivity of labor which in turn has been possible because of the application of the principle of division of labor. The division of labor has certain drawbacks too. It creates monotony, boredom, and alienation (for example, a person’s daily job is simply to tighten wheel nuts on a car production line will feel bored). It reduces the opportunity for the worker to exercise initiative, independent judgment, manual skill or responsibility. It also increases interdependence and the risk of unemployment. The ultimate extension of the principle is that of specialization of nations, which is the basis of the theory of international trade. Now after the establishment of the World Trade Organization (WTO), when custom duties are to reduce to a very low level, specialization between nations will further increase.
Q.11) Mr. Abdi, a chartered accountant working in Karachi, was offered a high position in the same company at the company’s Gilgit office. Mr. Abdi refused to accept the offer in the same position at Karachi. Identify the four possible factors behind his decision.
Answer: Mr. Abdi refused to accept the offer and some possible factors behind the decision may be:
Family bonds and social relations are strong, so he does not want to leave Karachi.
He does not like the cold climate at Gilgit.
Long distance and difficult in transport facilities to visit his family.
He is afraid that schooling of his children will suffer.
Economics Chapter #9 (Capital Resources) for Class XI
Q.1) Define the terms. Capital, Fixed capital. Circulating capital. Sunk capital, Human capital, Money capital, Real capital, Efficiency of capital, Capital formation, Corporate savings, Public Savings.
Answer: Capital: All means of production created by people; machines, tools, equipment, buildings, and structures that are used to produce more goods. Fixed Capital: Fixed capital is any kind of physical or real asset that can be used in the production of a product but is not used up in the production. It contrasts with circulating capital such as raw materials, operating expenses and the like. Circulating capital: Circulating capital (also known as working capital) It means the money available to purchase raw materials and paying of wages, rent, etc. This money is used again and again to keep the firm running. It does not include fixed capital like buildings and machinery. Sunk Capital: Sunk capital is that part of total capital of a firm which in no way can be recovered or changed into a new form e.g. expenditure on building or road. Human Capital: Human capital This is non-material capital in the form of knowledge, skills, and experience of people which they have acquired through formal training or education or on-the-job experience. Money capital: It is saved money which available to purchase capital goods and increase one’s income (i.e. invest the money). Money capital is later converted into physical capital Real capital: Capital, such as equipment and machinery, which is used to produce goods in known as real capital. Efficiency of capital: The efficiency of capital refers to the expected rate of profit or the rate of return from an investment over its cost. Capital formation: Capital formation (Capital accumulation) It is the increase in the capital stock in the form of machinery, plant, and buildings during a period of time. Corporate savings: Corporate saving is undistributed (accounting) profits, or equivalently the part of corporate value-added (or corporate GDP) that is not paid to taxes, to labor, to debt holders, or to equity holders. Public Savings: Defined as government revenue less government spending, or, taxes minus government spending and is often written as (T-G).
Q.2) What is capital? Explain the factors affecting productivity of Capital.
Answer: Capital: All means of production created by people; machines, tools, equipment, buildings, and structures that are used to produce more goods. [In financial and accounting terms, total money invested is called capital] Factors affecting productivity of Capital: Capital has the following Characteristics.
Capital is the result of human labor It is not a natural resource. (It never happens that a building comes up itself or a computer falls from a tree).
Capital is a passive factor It can produce something only when combined with labor.
Capital helps in production. It raises the productive capacity of labor.
Capital depreciates e.g. a machine loses value with the passage of time.
Capital is more mobile than other factors e.g. land has no geographical mobility. Labor and organization have less mobility. But capital is easily transferred to a place where it is secure and expects higher returns.
Capital goods are not wanted for their own sake. They do not satisfy human wants directly like consumer goods (shoes, food, TV set). They are needed because they help to produce consumer goods.
Capital is created when saving is invested.
Q.3) What are the kinds of capital? Discuss its role and functions in modern economic system.
Answer: Kinds of capital: 1. Fixed capital – buildings and machines which are not used up in the process of production. 2. Working capital (or Circulating capital) – stocks of raw materials that are changed into finished goods and sold for money. New raw materials are bought with me the same money. 3. Sunk capital and floating capital the part of capital which in no way can be recovered or changed into a new form e.g. foundation of a building or road is called sunk capital. Floating capital is that part of the capital that can be used for different purposes e.g. share certificates of a firm, deposits in the bank and raw materials that can be sold 4. Private capital is owned and used for private benefit e.g. Factory of an individual. National Capital includes those things which are used for the benefit of all and are owned by the government e.g. roads, railways. 5. Material or physical capital and Human Capital Material things which help in production, such as machines, etc. They are capital material. Skill and human experience, which help to increase production, are called human capital. 6. Money capital and Real Capital Surplus money meant for investment is called money capital. Capital in the physical forms of goods, materials, machinery, equipment and building structures is called real or physical capital.
Role and functions of Capital in Modern Economic System: 1. Provision of machines, tools, and equipment e.g. bus, tractor, computer, petrol pump, etc. These goods increase the productivity of labor. 2. Payment of wages: The goods produced by labor may not be immediately sold. So the employers need some capital to pay the wages of the workers. 3. Provision of raw materials: The entrepreneur uses capital to purchase necessary raw materials. E.g. to make shirt cotton is required. 4. Building: Most businesses need building or structures e.g. shop, factory, office, etc. Capital is used for its purpose. 5. Transportation of goods: The produced goods must be sent to markets where buyers are available. The producer needs capital in the form of trucks, wagons, etc. 6. Advertisement and publicity: In modern large-scale business, advertisement and publicity are undertaken to inform and introduce goods to buyers. Capital is needed for this purpose. E.g. to sell a new medicine or a new model of the TV, the companies must advertise.
Q.4) Explain Capital Formation. What are the sources of Capital Formation?
Answer: Capital formation or capital accumulation means increase in the stock of capital in a country. Capital has many forms i.e. machines, buildings, materials etc. So capital formation refers to increase in stock of machines, tools, equipment, construction of roads, dams, canals, factories, educational institutions, powerhouses and laying of pipelines. Sources of Capital Formation: A) Domestic Sources: Domestic savings are of three types i) Individual Savings can be increased by providing a fair return to the savers and by establishing banks in urban and rural areas. ii) Corporate savings can be increased by allowing tax concessions to companies. iii) Public Savings can be increased by austerity campaigns, increased taxation, and public borrowing. Tax is a compulsory saving out of peoples’ incomes. iv) Deficit Financing is also a convenient method used by modern governments for capital formation. Deficit financing means printing of money and an increase in the money supply.
B) External Sources: i) Foreign loans from governments and international financial institutions like the World Bank, Islamic Development Bank, Asian Development Bank, etc. ii) Direct Private investment by foreign enterprises can be encouraged. Countries like Malaysia, Thailand, and Indonesia are developing rapidly because they have obtained a huge amount of investment by foreign enterprises. Pakistan is also offering concessions to foreign enterprises for investing in Pakistan. But due to political disturbances and poor security situation, foreign investors are not attracted.
Q.5) Discuss the Importance of Capital Formation in the Economic development of Pakistan.
Answer: Capital Formation is the very core of economic development. What is economic development? It is building of roads, railways, airports, provision of transport vehicles establishment of business enterprises, increase in production of industrial goods, use of machinery in agriculture to raise its productivity, establishment of educational and training institutions. hospitals and generation of energy. None of these activities is possible without capital. Thus, capital formation is another name for the economic development of a country. The use of capital equipment greatly increases labor productivity. So capital accumulation becomes a pre-requisite for increasing the production capacity of a country and raising living standards. A national natural resource like minerals, forests, agricultural lands, oil, gas, water resources, and even human resources, can be fully utilized only if enough capital is available. The problem of unemployment and underemployment can be solved if capital formation opportunities for jobs expand. The application of modern technology also requires huge amounts of capital e.g. computers. Capital formation makes it possible to produce goods on a larger scale and at lower costs. Since capital formation leads to an expansion in national output, income, and employment, the problem of overpopulation is also overcome. When it is said that poverty breeds on itself, it means that a poor person is unable to save out of low current income and accumulate capital. He has no chance to raise the level of his future income. The result is that he remains poor. This highlights a basic fact about poor and less developed economies. They need an accumulation of capital at the fastest possible rate, but they do not have the means to do so because of their poverty. They are caught in a poverty trap, which is also called a vicious circle of poverty. These countries then look towards developed nations to provide them capital in the form of foreign loans.
Q.6) Explain the causes of slow capital formation in Pakistan.
Answer: 1. The consumption attitude of our society is unfavorable. Due to low incomes, most people have no choice but to spend the whole income. The attitude of the new rich class mostly having illegal sources of income through misuse of official or political position is especially deplorable. They indulge in wasteful consumption such as expensive marriages. 2. Poverty itself is a cause. Most of our population finds it difficult to buy the minimum necessities of life. How can they save? 3. Lack of financial institutions especially in rural areas. Many a time, a villager finds that the bank is several miles away from his home. Moreover, due to ignorance, particularly of womenfolk, people do not open an account at some bank. 4. Lack of incentives the incentives i.e. the return offered on saving has not been sufficient. 5. The failure of financial institutions in the past also discouraged people to save and invest. 6. Lack of education renders people unable to properly plan their incomes, expenditure, saving and investment. Majority of savers instead of using the money for expansion in productive activities prefer to put the savings into gold and land 7. The rapid increase in population is eating away our resources. Feeding of this huge number of mouths is a serious problem for Pakistan. 8. Less use of modern technology and sticking to old traditional methods of production also retards the pace of capital formation. 9. Tax revenue is mostly spent on running expenses, and only a small percentage is saved for development projects.
Q.7) Discuss measures to increase the rate of Capital Formation.
Answer: 1. Saving schemes are needed to accelerate the rate of capital formation. For this purpose, the government runs many saving schemes such as Prize Bonds, Pakistan Investment Bonas, Defense Saving Certificates, NIT units, etc. 2. Tax evasion should be reduced because the evaded amount is mostly spent on consumption. 3. Control of corruption in public funds should be severely dealt with. The careless spending of public money by government agencies and departments should be stopped. 4. Proper use of deficit financing means that the budget deficit is met by printing new money. Our government is already doing this on a large scale. 5. The private sector should be encouraged to establish new industries. The policy of privatization of government enterprise is a correct approach. 6. Proper utilization of foreign remittances Pakistanis working abroad sends about 4 billion dollars each year. Through various steps and policies, these funds should be diverted to productive channels instead of wasting on consumer items. 7. Improving law and order situation Investment takes place only if there are peace and security in the country. It is a basic requirement for encouraging investment. 8. External loans and direct foreign Loans from international organizations should be obtained on easy terms. (long term loans at a lower rate of interest). 9. Direct Investment by foreign companies should be encouraged. China, India, and Indonesia have increased the rate of capital formations through huge foreign direct investment in the private sector. However only political stability and peaceful atmosphere in the country can attract foreign capital.
Q.8) What factors determine Savings and Investment? What steps are needed?
Answer: Factors determine Savings and Investment: i) Individual savings can be increased by providing a fair return to the savers and by establishing banks in urban and rural areas. ii) Corporate savings can be increased by allowing tax concessions to companies. iii) Public savings can be increased by austerity campaigns, increased taxation, and public borrowing. Tax is a compulsory saving out of peoples’ incomes.
Steps needed of saving: Act of saving; people must current consumption to have saving Mobilization of Saving: Utilization of saving through bank and credit institution Investment of saving: Idle saving become hoarding and non-productive. Bank play the role of middleman inputting savers money into the hands of investors and make it productive.
Q.9) Write a note on the Productivity of Capital.
Answer: The productivity of capital refers to the ratio between the quantity of output and the amount of capital used. Capital has two general forms: i) Physical or Real Capital e.g., machinery, equipment, tools, office and factory buildings. ii) Money Capital (bonds and stock certificates)
When referring to physical capital, the productivity of capital means the total quantity of goods and services that is possible to get from a unit of capital input. When referring to money capital, productivity means a return to capital invested. The following factors affect the productivity of physical capital. A combination of factors Capital cannot work without labor. To get maximum outputs wanted assets should be combined in the right proportions with labor. For a given quantity capital, if we use too much or too little labor, its productivity will fall. Quality of labor Productivity of capital depends upon human efficiency. A machine can be more productive if operated by more efficient labor. Education, training, skin, and motivation of workers play a key role to determine how much output can be obtained from a piece of capital. Proper use of capital Physical capital is more productive if it is used for the purpose for which it was made. A truck will be more productive if it is used for carrying goods than for carrying passengers. (A saw is more productive for cutting wood than for cutting fruit). Use of complementary goods and equipment Some capital goods require complementary goods to work. The productivity of a bus will be higher if run on a good quality road. Quality of raw materials High-quality raw material increases the productivity of capital. The efficiency of a printer will be greater if a good quality paper is used in it. Better technology Improved technology can bring more output per unit of capital. Research for adaptation to local conditions Through research, if capital good like machinery is adapted to local conditions, the efficiency of capital will improve. Maintenance and repair facilities keep the productivity of a capital asset intact. Management and supervision The efficiency of managers and administrators of enterprises have a direct effect on the productivity of capital, which is used under their supervision. Experienced, motivated and careful managers will use capital more efficiently and get higher returns.
KPK-G11-Economics Notes-Chapter 10 (Organization)
Q.1) Define the terms Organization, Entrepreneur, Innovator. Partnership. A joint-stock company, Authorize Capital, Limited liability, Bond, Corporate Sector, Multinational Enterprise, Public Sector.
Answer: Organization: An organized group of people with a particular purpose, such as a business or government department. Entrepreneur: A person who sets up a business or businesses, taking on financial risks in the hope of profit. Innovator: A person who introduces new methods, ideas, or products. Partnership: When two or more than two persons join to run a business, it is called partnership. A joint-stock Company: A joint-stock company is a legal association between individuals that creates a new entity for business purposes. Authorized Capital: The authorized capital of a company is the maximum amount of share capital that the company is authorized by its constitutional documents to issue to shareholders. Limited Liability: The condition by which shareholders are legally responsible for the debts of a company only to the extent of the nominal value of their shares. Bond: A certificate of loan with the promise that the borrower will repay the loan along with interest, at the specified date in the future. Corporate Sector: Mean the total number of business corporation in the country consisting of joint stock private companies and public corporation. Multinational Enterprise: A multinational corporation or worldwide enterprise is a corporate organization that owns or controls the production of goods or services in at least one country other than its home country. Public Sector: The public sector is the part of the economy composed of both public services and public enterprises.
Q.2) Discuss the role of the entrepreneur in a firm.
Answer: The entrepreneur occupies a very important place in production. The specific functions performed by him are as given below. 1. To prepare Business Plan The first function of an entrepreneur is to decide the nature of business. He plans what to produce, how to produce and at what scale. 2. Provision of Capital, Land, and Labor If the organizer invests his own capital, he performs two roles; entrepreneur and capitalist. I can borrow funds. The land is purchased or hired. I have suitable persons for various kinds of work. 3. Purchase of Raw Materials or inputs The entrepreneur tries to purchase raw-materials at minimum cost. Poor quality, high cost or delay in supply of raw materials may result in lower profits or even loss. Combination of Factors The entrepreneur adopts that combination of factors that minimizes cost. He may use more capital and less labor or vice versa. 5. Supervision and Management For the management of the business, the entrepreneur may himself devote time or hire a suitable manager. Supervision of other people’s work is a difficult art. Those who are expert in this art get things done smoothly and efficiently. 6. Sale of Goods and Publicity. The entrepreneur not only produces goods but also tries to sell at reasonable prices. To increase sales, he may use publicity and advertisement for his product in newspapers, on radio, TV, the internet, etc. 7. Risk-Taking the entrepreneur is wholly responsible for the success or failure of the business. He undertakes the risk of loss in the expectation of profit. The basic difference between labor and the entrepreneur is the responsibility of risk-taking. 8. Payments to other Factors of Production Responsibility for paying rewards to hired factors lie on the entrepreneur. He has to pay wages, interest, and rent, even if it is in the loss. 9. Innovation and Search for Markets mean the introduction of new products, more efficient methods of marketing and improvement in the quality of the product. Entrepreneur introduces something better than his rivals, Innovation is important for success in modern business.
Q.3) Explain the Merits and Demerits of a Joint-Stock Company.
Answer: Merits of a Joint-Stock Company 1. Limited Liability (responsibility) In case of loss, the liability of the shareholders is limited. They are not responsible to pay more than the value of their shares. Because of limited risk, people freely invest in the company. 2. Easy to increase capital or get credit Joint-stock company can borrow huge funds from banks on easy terms. “It can sell shares in the stock market to collect funds. 3. Large Scale Production Availability of huge amounts of capital makes it possible for the joint-stock company to produce goods on a large scale and at a lower cost. 4. Long Life A company as a legal entity has a life independent of its individual owners. If one or more shareholders die or sell the shares, it makes no difference to the company. New shareholders take their place. 5. Easy to Separate A shareholder can quite easily separate himself from joint-stock company by selling his shares. This is not easy in partnership. 6. Long-period Projects Because of its long life and huge capital, a joint-stock company can undertake those projects which will give profit after many years. 7. The spread of Risk The risk of the business is spread over many shareholders. A joint-stock company can undertake even a risky project which an individual dare not. Investors can also spread the risk of their investments by buying shares of a variety of companies. 8. Increase in national savings and investment Since a joint-stock company provides an opportunity to invest savings in shares, national savings are encouraged. 9. Development of Technology Due to huge resources and large-scale production, joint-stock companies make investments in research and new technology.
Demerits of a Joint-Stock Company: 1. Lack of Interest of Shareholders Many shareholders become disinterested and leave everything to the directors of the company who usually promote their own interest at the cost of the company. 2. Initial Difficulties It is more difficult to establish a joint-stock company as compared to individual proprietorship or partnership. 3. The danger of Monopoly The companies, due to large size and resources can create a monopoly. Sometimes, a few companies make an agreement and exploit the consumers. 4. Labor Disputes In a joint-stock company there is no close contact between the workers and actual owners who are shareholders. Paid managers do not give proper attention to the problems of labor. Laborers form trade unions and fight against management. 5. Speculation Over speculation in the stock market about prices of shares may sometimes adversely affect real investment in the country. 6. Corruption The directors of big companies usually encourage corruption at higher govt. level to get the country’s policies changed to get concessions. 7. The exploitation of Shareholders Ordinary shareholders does not have full information about the affairs of the company. ” Directors may misuse company funds. 8. Disadvantages of Large-Scale Production There are many disadvantages to large scale production. Joint-stock companies must face such disadvantages.
Q.4) State the Advantages and Disadvantages of State Enterprise.
Answer: Advantages of State Enterprise: 1. Public Welfare The aim of a government is not to earn profit but to prom social and public welfare. The government may undertake projects which have poo, profit prospects but are important for the country’s economy e.g. construction of dams. 2. Development of Heavy Industry If the private enterprise shows little interest in the development of heavy or basic industries, the government should take this responsibility. 3. Economic and Social Equality An important function of the government is to create economic and social equality among the people. Government projects can promote this aim by providing employment and income-earning opportunities to people. 4. The welfare of Workers State enterprises provide more facilities to their workers. They provide security for a job. 5. Mixed Economy History shows that compared to pure Socialism or Capitalism, Mixed economy best serves the interest of the people. Thus, state enterprise is needed to balance the evils of the private sector. 6. Controlling prices Private sector frequently raise prices to increase profits. The govt by providing a part of the supply of essential commodities can check price rise.
Disadvantages of State Enterprise: 1. Lack of Incentive Government employees does not have the incentive to put their best in the business. They become inefficient. So, there may be loss or very low profit. “ 2. Red Tape, Corruption, bribery and dishonesty are very common things in state enterprises. This is one of the important drawbacks in state-owned enterprises. Files are kept pending without decisions. Government officials are not in a hurry to settle issues. 3. Wasteful Expenditure The government employees are less cost-minded. They make wasteful expenditure and use property carelessly. It raises the cost of production. 4. Transfers Frequent transfers from one post to another of functionaries in state enterprises creates inefficiency and irresponsible attitude. 5. Unnecessary Interference The ministers and top bureaucrats make unnecessary interference in state enterprises. So, the people, who are in direct charge of the enterprise, cannot function according to the demands of the market. 6. Political Favorite There is nepotism and favoritism in appointments and promotion of relatives or political supporters. Thus, inefficiency takes place. The enterprise is not run on business lines but to patronize political support. 7. The Government cannot function like businessmen the government is basically a political and administrative institution. It cannot be expected to function like a businessman or industrialist whose approach is market-oriented.
Q.5) Write a Note on Partnership.
Answer: When two or more than two persons join to run a business, it is called partnership. In partnership, there is a common and shared responsibility for profit or loss. A partnership generally takes place among those persons who are either relative. friends or known to each other. Partnerships are common in professions such as doctors. architects It is also available in the transport business. Partnerships are created through agreements in which the ownership shares and duties of each partner are specified. A partnership may take various forms: 1. Working Partners The shareholders or partners fully participate in the daily functioning of the business. 2. A sleeping partner is a person who invests capital in for any losses. some business without directly participating in the working of the business. 3. Partners without Capital A partner may be included in the business because of his special skills about the business. He does not invest capital but provides technical advice only.