Grade 11 economics 2023

Chapter 1

Analysis of factors of production and their remuneration

For any production of goods and services to take place. Factors of production need to be available.
These factors of production are land, labour, capital and entrepreneurship. These are called the
production inputs.

1. Natural resources
These include sources of wealth such as timber, fresh water, land and minerals that occur
naturally and have an economic value. Those resources are needed to manufacture products to
satisfy our needs ad wants.
Natural resources are divided into:
Economic goods- these are scarce resources that people are willing to pay for e.g minerals
Free goods- these resources are freely available in nature e.g the air we breathe and beaches
where we swim…it is possible that a free good can become and an economic good for example
bottled water.
Characteristics of natural resources
• Natural resources are scarce- these resources are scarce in relation to people’s needs
and, in the quality, needed in the production process. Some resources grow faster and
some take years to replenish if they are capable to do so.
• Natural resources have a price- people have to pay for these resources in order to use
them. The payment for these resources is rent and the amount of rent is determined by
the quality and the quantity of these resources.
• Uneven distribution of natural resources-natural resources is spread unequal across the
world. some parts of the world are rich in minerals and some are not. The surplus of
these resources in one country and the scarcity in another country leads to international
trade.
• Adding value to natural resources- most natural resources are not useful in their natural
form. Hence, they need to be changed or transformed to make them useful for human
consumption. When they are transformed, it is said that a form of utility(benefit) is
added to them.

Importance of natural resources

• They serve as a source of food
• They serve as inputs in the production of goods and services
• They provide an opportunity for international trade

Economic importance of natural resources

 • Agriculture, forestry and fisheries all provide for the population of south Africa.
Furthermore, South Africa has always been a net exporter of fresh fruit and vegetables
and wood. This industry also offers jobs to the population of the country.
• South Africa has a variety of minerals that are of good quality therefore it earns billions
of Rands from exporting these deposits. It also employs a large number of workers. The
foreign exchange earned form exports of these goods is used to pay for essential
imports such as oil.
• The mining industry is seen as the most important in the country as it attracts most
foreign investments and leads to the improvement of the country’s infrastructure.

Remuneration of natural resources

Natural resources are remunerated with rent. However, many businesses buy their own land and
buildings.

In the market economy, the demand for and the supply of land will determine the rent. if land is scarce,
it will be expensive and vice versa. The rent is also dependant on the type of economic activity being
performed with the resource. If the business is likely to earn a lot of profit from the land, it will be
expensive and that explains why residential properties are usually less expensive than business rentals
in the same area.

2. Labour
Labour includes all the work done by people, whether they are skilled or unskilled and whether
they provide physical or mental work.
Unemployed people are included in the country’s labour force as long as they are willing and
able to work.
Classification of labour
Higher level (skilled)- this includes the people who have passed grade 12 and have at least two
years of training at a tertiary institution. These people usually get a salary at the end of the
month.
Intermediate level (semi-skilled)- this includes all people who have passed grade 9 and have
undergone in service training. This includes, plumbers and sales people. These people earn a
salary or wage depending on their contract of employment.
Lower level (unskilled)- this includes all workers who have finished primary school or have never
been to school at all. They usually do physical work and receive a wage at the end of the day or
month.

Characteristics of labour

• Income is a goal- when people work, their main goal is to earn an income so that they can satisfy
their needs and wants.
• Labour is part of its owner- labour and the person doing the labour is one and the same thing.
 • Not storable- labour cant be stored or kept. If workers go on strike for a week, then that week of
labour is lost. The only way to make up for the lost time is for workers to work longer hours.
• Supply cannot suddenly increase- the country’s labour is made up of people between the ages
of 15 to 64. It can take a long time for people to enter the labour force.

The economic importance of labour

• the production of goods and services cannot take place without the mental efforts of labour.
• If the economy wants to grow it needs the right number of skilled, semi-skilled and un skilled
labour.
• Education plays an important role in the development of labour in the country so as increase the
productivity of labour in the country to avoid a situation whereby the cost of production is high
while the productivity is low. That will lead to increased inflation and make our exports un
competitive on international markets.

Remuneration of labour

Remuneration of labour consists of salaries and wages. Wages are usually calculated on a daily, weekly
or hourly basis and paid in cash whilst salaries are calculated per month or per annum ad are paid
directly to people’s bank accounts.

Economists distinguish between nominal and real wages.

Nominal wages- these are amounts that the worker receives each day, week or month. It is the actual
money that a worker gets. E.g R10 000

Real wage- this is the amount of goods and services that a person can buy with nominal wage. It is
known as the buying power of the nominal wage. Real wage can be affected by the inflation rate in the
country.

3. Capital
Is 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.
Classification of capital
Capital is divided in to two groups
Money capital- which is the money that is used to buy capital goods in order to make further
production possible.
Real capital- this includes the actual tools and machinery bought with money capital to use in
the production process to manufacture useful goods and services. Real capital can be divided
into two main groups: fixed capital and working or floating capital.
• Fixed capital- includes land and buildings, vehicles, equipment and furniture and they
are usually called durable capital goods because they are used more than once in the
production process.
 • Working and floating capital- is assets that are movable, including cash used for day to
day operations. It is only used once in the production process and consists of items such
as raw materials and semi-finished products. And they are called non-durable capital
goods.

Characteristics of capital

• Capital goods are made by people

• Machines wear out- this implies that they wear out or break down over time. They lose value
over time. The difference between the original price and the current price of the asset is known
as depreciation.
• Money capital can be changed to any form of capital.
• It is difficult or impossible to change real capital- real capital cannot be moved from place to
another. A building is occupationally mobile because it can be used for a different purpose but it
is not geographically mobile.
• Capital is expensive- buying machinery and equipment is very expensive and therefore
entrepreneurs prefer to pay off their capital or lease it.

Functions of capital

• Provides tools to add a form of utility- they are used to change a form of natural resources into
useful goods and services to satisfy consumer needs and wants.
• Make mass production possible- machines can produce on a large scale faster than humans.
They increase the quantity and quality of the final goods and services. More products can
become available and therefore the standards of living of people might improve.
• Improves the quality of products- machines are more precise than humans and can reduce the
number of mistakes that might be made by people in the production process.
• Makes standardisation possible- machines can produce products that look the same every time
and that meet the same standards of quality. That allows consumers to know the required
standard of the product the purchase.
• Makes selling on credit possible- enough money capital allows businesses to sell their products
on credit as they will not run into cash flow problems.

Economic importance of capital

• Capital translates into machinery and equipment which is used to produce high quality products.
• These goods raise the standard of living of people by increase the choice that consumers have.
• These goods can also be exported to earn foreign exchange and our reliance on imports can be
reduced.
• As part of government policy, the industrial development zones have been identified where
investment is most desirable. Special incentives exist to lower the cost of setting up operations
and this should attract foreign direct investment to serve as an injection in our economy.
Remuneration of capital

People or organisations such as banks lend their money to other people or organisations and charge a
price for doing it. This price is known as interest.

4. Entrepreneurship

This is the process of bringing together all the other factors of production and use them to produce
goods and services. Entrepreneurs are people who start, manage and control businesses. They start
these businesses to make money and, in that process, they employ people and influence the growth
of our economy.

Importance of entrepreneurship

• Combines other factors of production to produce goods ad service to satisfy consumer

needs and wants.
• They demonstrate initiative to start businesses. They come up with ideas, do research and
work out break-even point before starting a business.
• Take risks
• Make all the decisions related to the business

Economic importance of entrepreneurs

• They contribute positively to the growth and progress of the economy by providing job
opportunities to the people of the country as the formal sector cannot jobs provide for all.
• Introduce new products to the economy and that will improve the standards of living of people.
• They increase competition in the economy and that leads to a reduction of inflation.
• They increase the revenue received by the government through taxation

Remuneration of entrepreneurship

Profit is the remuneration that entrepreneur receives for taking a risk of starting a business. A
distinction is made between two profits.

Gross profit- which is the difference between the sales and the cost of sales.

Net profit- is the gross profit plus all other income minus all expenses.

Factors influencing profits

• The skill an entrepreneur has

• The demand for the product
• Production processes and techniques.

Investigation of community participation in local economic planning and activities

Community forums together with local government can play a vital part in the development of
entrepreneurs through skills development, financial assistance and making the best use of natural
resources in the communities. They can reduce poverty, create job opportunities and turn around the
low regional goth rate.

Accessibility of the economically marginalised groups

Economically marginalised- is a group of people that is very poor. It is worse off compared to the rest of
the population in terms of access to income and non-income which include basic services like water,
sanitation and electricity. They earn less that minimum wage or do not earn any form of income and are
usually unemployed. They are not employable because they cannot read or write.

• Economic marginalisation is the direct result of the apartheid regime

Empowerment of marginalised groups

• Labour laws were put in place to protect the rights of all employees. E.g. BEE/BBBEE,
Employment Equity Act of 1998, affirmative action and Skills development.
• Learnerships through SETA play an important part in providing the training necessary for the
skills demanded by industries.
• Preferential procurement- was adopted under the BEE Act of 2007 to help transform the social
landscape. It is practically a way in which a small and medium business can be a supplier to the
government. It has a potential of distributing wealth to marginalised groups and the
development of small businesses.