PRODUCTION THEORY AND MARKET STRUCTURES

Production is any activity aimed at bringing about a physical change in a good to make it satisfy human wants.

OR

It is the process of transforming inputs or raw materials into more useful final products to satisfy human wants.

OR

It is the creating of utility in goods to satisfy human wants.

The production process is not complete until the commodity has reached the final consumer.

STAGES/LEVELS/CATEGORIES OF PRODUCTION

There are three stages of production namely:

1.     Primary production

2.     Secondary production

3.     Tertiary production

PRIMARY PRODUCTION

This is a stage where raw materials are extracted from their natural state e.g. farming, fishing, mining, lumbering, bee-keeping, oil drilling, etc. The products at this stage are called primary products e.g. agricultural products, fish, timber, etc.

SECONDARY PRODUCTION

This is a stage where raw materials extracted at the primary stage, are processed and turned into finished goods for example turning cotton into clothes, timber into furniture.

Secondary production involves manufacturing which involves turning raw materials into finished goods and construction like bridges, road making, house building etc.

TERTIARY PRODUCTION

Tertiary production is the provision of services or intangible commodities.

The output of the primary and secondary stages have to be transported, stored, advertised, and insured. Such services form the bridging stage.

There are two main types of services provided,

(a)  Personal/Direct services:

These are services provided in person. The service provider and the service consumer must be in direct contact or communication for effective delivery e.g. hair dressing services, Medical care services, teaching services etc.

(b)  Commercial services:

These are services provided indirectly in large amounts to improve business operation or production. Such services include transport services, banking services, insurance services etc.

TYPES OF PRODUCTION

There are two types of production namely;

1.     Direct production

1. Indirect production

DIRECT /SUBSISTENCE PRODUCTION

It refers to the production of goods and services for one’s own/self use or consumption. For example a carpenter making his own chair, a Tailor making his own shirt or a farmer growing food crops for his own consumption etc. 

Characteristics of subsistence production

• Producers mainly use poor/backward/primitive technology
• There is limited specialisation and trade
• Mainly produce poor quality output
• Mainly use unskilled labour
• Mainly barter system of exchange is used.
• Mainly family labour is used
• Mainly produce low output
• There are limited innovations and inventions due to lack of competition.

Advantages of subsistence production

• There is limited wastage of resources since whatever is produced is consumed by the producer.
• It is cheap because it uses cheap and abundant (unskilled) family labour.
• It uses simple tools that are easy to get by the low income groups e.g. hand hoes, knives etc
• It is easy to manage because it is organised on small scale and thus it require limited managerial and supervision skills.
• It is the main source of food.
• There are no transport costs involved since the producer is the consumer.
• It is highly flexible. Subsistence productions easily change from one activity to another.

Disadvantages/ demerits/ shortcomings of subsistence production

• It leads to low tax revenue because people in this sector do not pay taxes.
• Leads to limited innovations and inventions in the sector due to lack of competition. This discourages technological development in an economy.
• It leads to slow economic growth rate due to low quantity of output produced
• It leads to production of poor quality output due to use of poor technology and lack of competition.
• It leads to high levels of under- employment and seasonal unemployment because producers rely on family labour.
• It leads to underutilisation/under exploitation  of natural resources because production is on a very small scale.
• It leads to limited specialisation and trade which hinders commercialisation of an economy since the goods produced are not for exchange.

Reasons why subsistence production/ sector is dominant in developing countries:

o  Many people are poor and therefore lack capital to carry out commercialized production.

o  There is existence of low levels of education and thus producers are not able to carry out commercialised production but rather concentrate on subsistence production.

o  Use of poor technology. This makes it hard to produce high quality products in case the producer has to sell.

o  Conservatism by the people and therefore resist change from subsistence production to commercial production.

o  Poor infrastructure. This makes it very difficult to take the products to markets especially agricultural products.

o  Existence of a small market which cannot sustain commercialised production.

INDIRECT/ COMMERCIAL/ MARKET PRODUCTION:

Indirect production is the production of goods and services for sale or for the market in order to make profits. E.g. a carpenter making chairs for sale, a farmer growing crops for sale, tailor making clothes for sale etc.

Features/ characteristics of market production

• Producers are mainly profit oriented/motivated
• There is specialisation because the producers sell their output in order to get what they do not produce.
• They mainly produce high quality products due to competition that exists in the market.
• They mainly employ skilled labour.
• They mainly use improved techniques of production.
• Production is mainly on large scale
• The exchange of output is basically done using money
• Production mainly involves research into better means of production and adding value.

Merits of commercial production

• It contributes to government revenue because commercial production activities are taxed by government.
• It leads to improvement in quality of goods due to competition and use of skilled labour and modern technology. 
• It facilitates economic growth because of increased output due to production on large scale.
• It encourages technological development because producers carry out innovation and invention into better technique of production
• Economies of scale are enjoyed in the fields of transport, marketing, technical development and management which reduces the cost of production.
• Specialisation in production is possible because of large size of the production plants and hence the advantages of specialization such as improved quality and increased output.
• Commercial production facilitates the development of infrastructure since there is constant need for transporting final output to the market or need for producers to transport inputs to the production unit.
• It generates more employment opportunities due to large scale production that involves many activities like actual production, processing, transporting, warehousing, marketing etc.  
• Leads to increased export earnings because some output from commercial production is exported to other countries. This eventually leads to improvement in the country’s balance of payment position.
• It leads to increased utilisation of a country’s resources due to large scale production which necessitates the utilisation of the would be idle resources such as land.

Demerits of commercial production

• It is expensive because it involves high costs of production like high cost of hiring skilled labour, buying modern machinery, paying high indirect taxes etc. This reduces the profit margin of the producers.
• It leads to resource wastage resulting from over production where producers remain with unsold output.
• In case of change in demand or change in tastes of consumers against a product, the producers suffer great losses leading to wastage of resources.
• There is danger of technological unemployment as a result of mechanisation in production where human beings are replaced by machines at work.
• It leads to rise in the cost of inputs such as raw materials and other intermediate products due to the increased competition for such inputs by many commercial producers.
• It leads to quick depletion of resources due to their over exploitation as a result of large scale production.
• It leads to diseconomies of scale in the long run. This is because large scale production results into management problems, transport problems supervision problems etc. All these result into increased cost of production.      

Limitations of market/commercial production

o  Small market

o  Limited capital

o  Poor infrastructure

o  Conservatism

o  Limited Labour skills

o  Limited entrepreneurial skills

o  Political instability

o  Poor technology

o  Poor land tenure system

FACTORS OF PRODUCTION/AGENTS OF PRODUCTION

Factors of production also known as agents of production refer to resources used in the production process to produce goods and services in order to satisfy human wants.

Production cannot take place if one of the factors of production is missing. This implies that the factors of production are interdependent. Some of the factors of production are financial (financial resources) such as capital, some are natural (natural resources) such as Land and others are human such as labour and entrepreneurship.

There are four factors of production namely;

o  Land

o  Labour

o  Capital

o  Entrepreneurship.

Each of them is rewarded for its contribution in the process of production and such a reward is called a factor Price.

NB

A factor price refers to a monetary reward/ payment given to a factor of production for its contribution in the process of production.

The factor prices are;

• Wages and salaries for labour
• Interest for capital
• Profit for entrepreneurship
• Rent for land

LAND

This refers to all natural resources i.e. free gifts of nature that are used in the process of production.

It includes all kinds of natural resources such as agricultural land, minerals, plants, water bodies etc.

Characteristics of land

• It is a free gift of nature
• Land is fixed in nature
• Productivity of land varies
• Land is subjected to the law of diminishing returns
• Land is mobile occupationally and immobile geographically

Uses of land

• Provides space for the construction of manufacturing plants.
• Provides space for agriculture/farming
• Provides raw materials/minerals
• Provides forces that run machines like wind
• Used for settlement/ residential purposes
• Land is used for recreation and tourism

RENT

This is the monetary reward to land as a factor of production for its contribution in the production process.

 However all rent for Land is economic rent because of the following:

• Land is a free gift of nature with no supply price.
• The supply of land is fixed( perfectly inelastic)

Transfer earnings and economic rent

Each factor of production has a minimum reward required to keep it in its present employment without inducement to change to alternative employment. Such a reward is called transfer earnings / supply price.

For example if a worker who is willing and comfortable to work for Shs. 200,000, this is his transfer earnings because for as long as he is earning that, he is not willing to change the job but any earnings below that value will induce the person to change to another employment/job.

However, it should be noted that it’s possible for the person to earn in excess of the transfer earnings e.g. if that worker is paid Shs. 300,000, it means that he is earning shs.100, 000 in excess of the transfer earnings. Shs.100.000 is what we refer to as Economic rent.

Definitions

Transfer earnings refer to the minimum /lowest payment to a factor of production to keep it keep it in its current/present employment/ use and prevent it from shifting/ transferring to the next best/ alternative use. 

Economic rent refers to the extra earnings given to the factor of production which is over and above the transfer earnings/ supply price.

An illustration of Economic rent:

Calculations involving economic rent

Economic rent = Market price- Supply price/Transfer earnings

 OR;                =Actual payment- Supply price/Transfer earnings

Example 1

Given that the supply price of a factor is Shs. 350,000 but it is receiving a market price of Shs.560, 000, calculate the economic rent.

Solution

Economic rent = Market price- Supply Price

                                  Shs. (560,000 -350,000)

                                    Shs. 210,000/=

Example 2

Given that a piece of land is valued at Shs. 50,000,000/= by market agents, determine its economic rent.

Solution

Economic rent = Market price- Supply price

                      But the Supply price of land = Shs 0

Therefore Economic rent = Shs (50,000,000- 0)

                                          Shs. 50,000,000/=

Exercise  

Given that the Supply price of a factor is a half times its market price and the market price is recorded at Shs. 840,000, calculate the

(i)                The factor’s transfer earnings

(ii)             The economic rent

TYPES OF RENT

1.     Quasi rent: This is the extra earnings for the factor of production that is over and above the transfer earnings/ Supply price that has inelastic supply in the short run but elastic supply in the long run e.g. the supply of doctors in the short run.

2.     Commercial rent; This is the payment made for the use of a durable asset e.g. houses, tractors, generators, music systems, etc.

3.     Scarcity rent: It is payment to the factor of production especially land due to its relative scarcity e.g. Land for construction in urban areas is relatively scarce due to its increased demand for it.

4.     Differential Rent: It is a reward/payment to a factor of production due to its uniqueness. Normally factors of production are not homogeneous (not similar) e.g. Land which is more fertile will earn higher rent than one which is infertile.

5.     Site / Location rent: It is the type of rent which is paid to the factors of production especially land due to its location e.g. urban land earns a higher rent than the rural land because of its location in the urban areas.

FACTORS THAT DETERMINE/ INFLUENCE/ AFFECT ECONOMIC RENT

1.     The level of Supply of a factor of production.

A factor of production with high supply earns a low economic rent and the one with low supply earns a high economic rent.

2.     The level of demand for the factors of production

A high demand for the factor of production implies a high economic rent and the lower the demand for the factor of production the lower its economic rent e.g. urban land which has high demand earns a higher economic rent than the land in rural areas,

3.     The Elasticity of supply of factors of production.

The more elastic the supply, the less the economic rent and where supply is perfectly inelastic, economic rent is high, and economic rent is zero where supply is perfectly elastic.

4.     The elasticity of demand for a factor of production.

A factor of production with inelastic demand earns a high economic rent and the one with elastic demand earns a low economic rent.

5.     Degree of Specificity of a factor of production.

A highly specific factor of production earns a high economic rent and a less specific factor of production earns less economic rent.

6.     The degree of substitutability of a factor of production.

A factor with a high degree of substitutability earns a low economic rent and the one with a low degree of substitutability earns a high economic rent.

LABOUR

This refers to the human effort both mental and physical that is used in the production process.

Labour is vital in the process of production and without it production cannot take place.

 The quality of labour can be improved through training so as to equip the unskilled labour with the appropriate skills.

Features/characteristics of labour

o  Its human and cannot be separated from the owner.

o  Labour effort cannot be stored.

o  It is a very mobile factor of production i.e. labour is both geographically and occupationally mobile.

o  Supply of labour depends on different factors like population, level of education, training facilities and social conditions.

o  It earns a wage or salary.

o  Labour is scarce but its supply can be increased.

o  The productivity of labour is variable i.e. sometimes labour is very productive due to favourable employment opportunities.

o  The demand for labour is derived demand i.e. it is not demand for its own sake but for the sake of goods it helps to produce.   

TYPES OF LABOUR

1.     Skilled labour

This is a type of labour which has acquired special or specific skills through education and training. People acquire skills through training which may be formal or informal.

Acquiring skills through formal training involves going through school and being trained using a properly designed curriculum.

On the other hand informal training involves acquiring skills while on the job.

2.     Semi-skilled labour:

This is the type of labour which has acquired elementary training, therefore not adequately trained.

3.     Unskilled labour

This refers to that type of labour which has not acquired any specific or special skills through education and training i.e. it is not equipped with the appropriate skills.

4.     Productive labour

It refers to that labour which is engaged in the production of goods and services with a market value. Such labour is rewarded with a wage or a salary.

5.     Unproductive labour

This refers to labour which doesn’t produce any goods and services.

NB

Co-operant factors of labour are the complementing factors that labour works with to produce goods and services. They are the other factors of production such as capital, land and entrepreneurship. 

OTHER CONCEPTS USED IN RELATION TO LABOUR

1.  Productivity of labour/ labour productivity.

This is the measure of the quantity of output that a unit of labour can produce in a given period of time.

2.     Efficiency of labour/Labour efficiency.

This is the measure of the quantity and quality of output that a unit of labour can produce in a given period of time.

FACTORS THAT AFFECT/DETERMINE/INFLUENCE LABOUR EFFICIENCY AND LABOUR PRODUCTIVITY

1.     Level of wages.

A high level of wage motivates workers and makes them more efficient and productive because they are contented with the wage paid to them whereas poorly paid workers are de-motivated and therefore are less efficient at work hence producing less output.

2.     The level of education and training /skills.

Highly skilled workers are very efficient when doing work because they are well conversant with the work being done, while labour efficiency is low for those workers without appropriate skills because they are not conversant with what they are doing.

3.     Level of technology.

Labour efficiency is high when workers are using modern technology because it makes work faster while poor and outdated technology leads to low labour efficiency because the production is slow.

4.     The quality of management.

Good management in the business leads to high labour productivity and efficiency because it effectively supervises the workers hence producing more output. On the other hand, poor management in the business leads to low labour efficiency and productivity because of poor supervision of the workers.

5.     The working conditions.

Good working conditions like safety precautions, hours of work, accommodation, transport facilities and medical facilities etc motivate workers and make them produce more output while poor working conditions lead to low labour efficiency because workers are dissatisfied with the working conditions.

6.     Mental abilities and physical strength.

A mentally sound and /or physically strong labourer is more productive and efficient at work because such a worker has a sound mind which enables him/her to effectively perform the required tasks thus leading to high output while mental disabilities lead to inefficiency because the workers do not have sound mind to effectively perform tasks thus low output produced. 

7.     The attitude of a worker towards work.

Labour efficiency is higher for workers with positive attitude towards work because they are committed to their tasks thus leading to higher output. On the other hand, workers with negative attitude towards work are less efficient because they are not committed at work thus leading to low output.

8.     Level of specialisation of a worker.

Labour efficiency is high for labour that is highly specialised  because it enables labour to engage in a particular task in which it is good at hence becoming more efficient. On the other hand labour efficiency is low for workers that are not specialised because they do not concentrate on a particular task hence less efficient.

9.     Political atmosphere.

Political stability leads to high labour productivity and efficiency because it allows people to settle and concentrate on their work while political instability leads to low labour efficiency and productivity because workers live under fear and thus do not concentrate at work thus less efficient at work.

10. Availability and efficiency of co-operant factors of production.

The presence of co-operant factors of production that are efficient leads to high efficiency of labour since labour work hand in hand with those other factors of production which leads to high output. On the other hand absence of efficient co-operant factors of production limits labour efficiency because of poor co-ordination between labour and other factors of production hence low output produced.

11. Natural abilities/ Talents.

High level of natural abilities leads to high level of efficiency because of the high level of creativity and innovation of such workers. On the other hand people with limited natural ability are less efficient in production because they are less creative and innovative.

12. Degree of experience/ Expertise.

High degree of experience of labour leads to high level of efficiency because experienced workers are knowledgeable about their work and therefore perform the tasks with ease. On the other hand low degree of experience leads to low labour efficiency, this is so because workers are less knowledgeable about their work, hence take a lot of work performing their tasks.

Factors that lead to high labour efficiency:

• High level of wages
• High level of skills
• Presence modern/ advanced technology
• Presence of good management in business
• Presence of good working conditions
• Presence of mentally sound and physically strong labour
• Positive attitude towards work
• High level of specilalisation of labour
• Presence of political stability
• Presence of efficient co-operant factors of production
•  High level of natural ability/ talents
• High degree of experience/ expertise

       Factors that lead to low efficiency of labour: 

·        Low level of wages

·        Low level of skills

·        Poor/Primitive/Outdated technology

·        Poor management in business

·        Poor working conditions

·        Presence of mentally Unsound and physically weak labour

·        Negative attitude towards work

·        Low level of specialisation

·        Political instability

·        Absence of co-operant factors of production

·        Low natural ability/Limited natural talents

·        Low degree of experience

FACTOR MOBILITY/MOBILITY OF FACTORS OF PRODUCTION

Factor mobility refers to the ability/ ease/ degree with which a factor of production either moves from one job to another or from one geographical area to another.

Factor mobility is both occupational and geographical.

Geographical mobility of a factor of production is the ease with which a factor of production moves from one area to another.

Occupational mobility of a factor of production is the ease with which a factor of production moves from one job to another.

 The inability of the factors of production to move from one job to another or from one geographical region to another is termed as immobility of factors of production.

LABOUR MOBILITY:

This refers to the ease/ ability/ degree with which labour moves either from one job to another or from one area /region to another.

The movement is both occupational and geographical.

Geographical mobility of labour: This is the ability /ease/ degree with which labour moves from one geographical area/region to another.

Causes of geographical mobility of labour:

• Insecurity: labour moves from one area to another due to insecurity in the current area
• Geographical wage differentials: Labour may move geographically especially from rural areas to urban areas in search of higher wages.
• The search for jobs. Some people move from one region to another in search for employment opportunities.
• Natural calamities such as drought and floods can make a worker to move from one place to another.

    Occupation mobility of labour: This is the ability/ease/degree with which labour moves from one occupation to another.

Causes of occupational mobility of labour:

• The desire for higher wages which are found in other occupations.
• Poor working conditions at the current job.
• Poor administration and lack of prospects for any promotion at the current job makes workers to leave certain occupations and go for other jobs.
• Discrimination in the labour market based on religion, tribe, gender etc

Types of occupational mobility of labour:

           Vertical mobility of labour:

 This is where a worker moves from a job of a lower rank/grade to that of a higher rank or grade e.g. from the classroom teacher to Head teacher or from an accountant to senior accountant.

           Horizontal mobility of labour:

This is where a worker moves from one job to another job but still of the same grade e.g. a classroom teacher moving from one school to another but still remains a classroom teacher.

Advantages of mobility of labour:

• It leads to high levels of employment; this is because labour can move to other areas where there is employment.
• It enables labour to get high wages since it move from low paying jobs to high paying jobs or from low paying regions to high paying regions.
• It leads to high labour productivity i.e. labour tends to move away from where it is not fully utilized to areas or jobs where it is fully utilized.
• Geographical mobility of enables labour to create a sense of international mobility since labour from all parts of the world can come to work together.

         Factors that influence / affect/ determinants of labour mobility:

• Degree of specialization: Highly specialized labour is immobile because such labour finds it difficult to change from one occupation to another while labour which is not highly specialized is mobile because it finds it very easy to change from one job to another.

• The payment to labour in the current job: Labour that is well paid in the current job is reluctant to change his/her job hence immobility because such labour is contented with the payments, while labour that is poorly paid in the current job is eager to change to a better paying job hence promoting mobility.

• The cost of training for another occupation: A high cost of training makes labour immobile because it is not easy to meet those cost so as to take on a new job. On the other hand a low cost of training for another job makes it easy to train and enable labour to take on an alternative job thus promoting mobility.
• Conditions of work in the current job: Good conditions of work in the current job makes labour immobile because it is reluctant to move since it is contented with conditions of work at the current job while poor conditions of work in the current job makes labour mobile because workers are keen to change to a new job where conditions are better.
• The information about existence of other job opportunities: Labour is mobile when it is informed about the existence of other job opportunities, while ignorance of the existence of other jobs makes labour immobile.
• Political climate: Political instabilities in the areas of alternative jobs causes immobility of labour because people fear to go those areas of alternative jobs for fear of losing their lives while political stability in the area of the alternative job makes labour mobile because people don’t fear to go those areas of alternative jobs since their lives are not in danger.
• The strengths of trade unions and professional bodies: Strong trade unions and professional bodies cause immobility of labour because they restrict the recruitment of workers in their occupations, while weak trade unions and professional bodies encourage mobility of labour because they do not have the ability to restrict recruitment of workers in their occupations.
• Health of the worker: Workers with good health conditions are mobile because they can work in any part of the country while those with poor health conditions are immobile because they are not able to move and work in some areas.
• Age of the workers: Elderly people are very reluctant to change occupation and this makes labour immobile because such people are not willing to take on new challenges, while young people who are very vibrant, are still adventurous and therefore eager to change the job and this makes labour mobile.
• Availability of jobs specifications: Labour becomes mobile if the worker has or meets the specifications required by the employers, in the alternative job. On the other hand labour that lacks appropriate job specifications is immobile because the employers in the alternative occupations are not willing to take on such people.
• Cultural factor: Labour is immobile if it has strong cultural ties because it is not ready to go to other areas with alternative jobs. On the other hand labour without strong cultural ties is mobile because there is nothing it to a particular area.
• Fear of the unknown: This causes immobility of labour because people fear to risk whereas labour that is daring is mobile because it doesn’t fear risks.

      LABOUR IMMOBILITY:

This refers to the inability of Labour to either change from one job another or from one geographical area to another.

There are two types of labour immobility;

           Occupational immobility of labour: This refers to inability of labour to move from one job to another.

Causes of occupational immobility of labour:

• Limited natural ability. Some people do not have certain natural abilities necessary for certain occupations and therefore they cannot take on such occupations.
• Long training period for other jobs. Some occupations/professions that take long period of training brings about occupational immobility e.g. Medical Doctors who take seven years to qualify and start working.
• High cost of training for another job. Some people do not have adequate funds necessary to train for the alternative jobs.
• Old age. Individuals who are advanced in age cannot easily change to other jobs because they are approaching retirement age.
• High degree of specialisation of labour/Limited skills for the alternative job.  Workers who are highly specialised in one occupation find it difficult to move to other jobs since they have qualifications for one occupation.
• High prospects of promotion in the current job. A high prospect of promotion in the current job discourages labour to join other jobs for fear of missing such promotions.
• High social status /High self esteem of the current job. Individuals are reluctant to leave the current job because of the high self esteem associated with the current jobs.
• Barriers by trade unions and professional bodies. These limit entry of other people without the necessary qualifications hence limiting occupational mobility of labour.
• Stringent requirement for alternative occupations. This limits the occupational mobility of labour due to high bureaucratic tendencies involved in getting the alternative jobs.
• Limited information about alternative job. Some people are not aware about the presence alternative jobs hence failing to change from the current job to the alternative jobs.
• Better wages in the current jobs. Employees remain in the current jobs because they are satisfied with the wages paid at the current jobs.
• Better working conditions in the current job. Employees are reluctant to leave their current jobs because of the good working conditions which are satisfactory.
• Social ties/Restrict ions. Employees are reluctant to leave the current jobs because of the social attachment they have at the current jobs e.g. religious attachment, being a relative to the employer etc.
• High discrimination in the labour market. Employees are unable to join the alternative jobs because the employers in the new jobs are not ready to offer them those jobs for some reason e.g. not belonging to the right tribe, race or religion of the employers’ preference

          Geographical immobility: This refers to the inability of labour to move from one           geographical area to another.

       Factor that cause geographical immobility of labour

• Limited information about existence of jobs in other areas
• Political instability in some areas of the economy
• Poor infrastructure in some parts of the country
• Strict immigration laws
• Low wages in some parts of the country
• Poor working conditions in some parts of the country
• High transport costs to move to some parts of country
• Socio-cultural ties

Solutions for labour immobility:

• Advertise employment opportunities so as to make people aware of the existing jobs.
• Encourage the people to retrain or go for refresher courses so as to be occupationally mobile.
• Improve the political atmosphere so as o make all areas accessible to the workers
• The government should regulate the powers of the trade unions and professional bodies.
• Infrastructure should be developed to encourage the movement of labour from one place to another.
• The government should relax immigration laws so as to encourage the people to go for employment outside the country.
• Increase wages in areas with low wages.
• Improve working conditions in other areas/alternative jobs.
• Fight social prejudices.
• Subsidize transport for workers. 

      Factors that promote/ encourage labour mobility in an economy:

• Low level of discrimination in the labour market
• Limited social ties/limited restrictions
• Better working conditions in the alternative jobs
• Better wages in the alternative job/occupation
• Presence of information about the existence of alternative jobs
• Presence of requirements for the alternative job
• Absence of barriers by trade unions and professional bodies
• High social status/high self esteem of the alternative occupation
• Low prospects of promotion in the current job
• Low degree of specialization of labour/ presence of the required skills for the alternative occupation
• Youthful labour
• Low cost of training for the alternative job
• Short period of training for the alternative occupation
• Presence of natural abilities for the alternative occupation

      DIVISION OF LABOUR AND SPECIALISATION:

 Division of Labour refers to the act of allocating different tasks among different individuals       during the production of a particular commodity e.g. in shoe manufacturing, some people can design the soles, others cut the upper leather, others fix the laces, etc. in order to complete the production of a shoe.

Specialization:

This refers to the concentration of an individual or a country on producing one or a few goods or doing a particular type of work or producing a particular commodity which/ that individual or country is good at.

Types/ Forms of Specialization

• Specialization by skill/profession: This is where an individual or a  worker concentrates on a particular skill or work or profession one is good at. e.g. one specalises as a teacher, doctor, an engineer, etc
• Specialisation by commodity: In this case an individual concentrates on the production of a particular commodity that he/she can do better than others.
• Specialisation by Process: This is where a worker or a group of workers concentrate on performing a particular activity in the production process.
• Specialisation by area or region/Regional Specialisation: This is where a particular region or area concentrates on carrying out a particular activity or producing a particular commodity that they can do better than others.eg tea growing in an area.
• International specialisation: this is where a country concentrates on a particular commodity or field of production in which it has a comparative advantage over others. For example Brazil for Coffee.

        Merits /advantages of Specialisation:

• It improves the quality of output since skilled workers / experts using machines are employed
• It improves the skills of the workers because the workers do the same activity repeatedly.
• It increases production / output i.e. it encourages mass production since every worker becomes an expert in his work and produces greater output within a short time.
• It saves time that would otherwise be wasted moving from or job to another and learning a new task as a worker concentrates on only one activity
• It increases resource utilization because of improved efficiency in the use of machines.
• It promotes commercialisation in the economy because it brings the need for exchange in order to get what you don’t have or what you cannot produce.
• It encourages the use of machines in the production process which leads to increased output
• It reduces fatigue by making the work more enjoyable and less tiresome
• It provides employment to specialist workers e.g. engineers, accountants etc
• It provides a variety of products because different people engage in producing different products

Demerits of specialisation and division of labour 

• It creates a lot of interdependence which causes delay or a standstill in production in case one worker is not there.
• High risks of unemployment where the more specialised one is, the lower the occupational mobility. This is so in the event of change in demand or fashion as specialist workers who are laid off cannot easily shift to other tasks or jobs
• International Specialisation encourages economic resource dependence i.e. where countries rely on resources from other countries for their development and survival.
• Leads to decline in craftsmanship with employment of machinery in a production processes, the workman cease to be innovative /creative /inventive and becomes mere attendant of the machines
• Specialisation may also lead to reduction in the quality of final goods. This is because no single worker is to blame for bad results.
• Creates monotony and boredom by doing the same task repeatedly. Boredom at work increases the risk of accidents and absenteeism both of which lead to decline in production.
• Breakdown of machinery at one stage brings the entire production process to a standstill
• It leads to overproduction hence wastage due to limited market
• Leads to quick depletion of resources due to over-exploitation of natural resources.

Specificity of factors of production

The degree of specificity of factors of production refers to the extent to which a factor of production can be transferred from one purpose to another.

Some factors of production are specific or specialised while others are not. A factor is said to be specific if it is of a specialised kind and therefore cannot easily be used for any other purpose other than the one it was originally intended for. Such factors include: very highly skilled and trained labour and some capital assets like flat iron, sewing machines, fridge etc

While non specific factors of production are those that can easily be transferred from one use to another e.g. unskilled labour (casual labour), agricultural land etc.

Relationship between mobility and the degree of specificity of factors of production

The degree of specificity of factors of production affects its mobility in that factors of production which are highly specialised are occupationally immobile where as factors of production with a low degree of specialisation are occupationally mobile.

CAPITAL:

Capital refers to all man made goods that are used in the process of production to produce other goods e.g. machinery, buildings, cash, vehicles, etc.

 Capital is rewarded with interest.

Types /Forms of capital:

• Real Capital: This is the capital in form of physical assets e.g. the fixed assets like machinery, buildings, vehicles, etc
• Liquid/money capital: This is capital in form of cash which includes both currency notes and coins.
• Private or Individual capital: This is capital owned exclusively by an individual or a group of individuals and it’s accumulated by them. Examples include investment in business, shares of companies and bank deposits which bring income to an individual.
• Public /Social Capital: This is capital owned by the state and used collectively by the society e.g. Public hospitals, public schools, public parks etc.
• Fixed Capital: This is capital in form of durable assets.
• Floating Capital: This is capital whose use is not fixed and can be used for many purposes e.g. money (cash), buildings, etc
• Sunk Capital: This is fixed capital that cannot be used for any other purpose apart from one it has been made for e.g. Railway line, ice cream plant etc.
• Circulating or working capital: This is the capital in form of cash which is used to meet the day today expenditures of the business e.g. paying wages, purchasing raw materials, meeting transport costs .Circulating capital is also referred to as Working capital or Variable capital
• Human capital. This is the skill which is instilled in Labour or human persons through education or training.

Features of capital as a factor of production:

• Capital is man made
• Capital depreciates in value due to wear and tear
• Capital accumulates with time
• Its reward is interest

Sources of capital to an individual:

• From personal savings
• Inherited wealth or incomes
• From retained profits
• Acquisition of loans from financial institutions
• Loans from prosperity for all.
• Gifts and transfer incomes

Sources of capital to the government:

• Revenue realized from taxes
• Proceeds from public enterprises
• Donations and grants from other countries
• Loans from donors
• Raising money through the sale of treasury bills.

         Role of Capital in the Production process

• It increases efficiency and productivity of other factors of production especially Labour. A person who is equipped with capital goods such as machines is in a better position to increase his/her output levels and the quality of output also improves.
• It facilitates optimum use of resources /Facilitates optimum employment of resources. Capital in form of machinery enables an economy to utilize  the available resources and therefore reduce resource wastage.
• It facilitates research in an economy. Capital in form of machinery and money enables research to be introduced in various sectors and this therefore results into technological development, innovations and inventions which help in rapid development of the sectors of the economy.
• It promotes specialisation in the production process since machines are used and they make specialisation very easy. Capital in form machinery enables an individual to concentrate in production of a particular commodity. This results into an increase in volume of goods and services hence promoting trade in an economy.
• Capital is an engine of economic reforms. Capital makes it possible to transform a primitive economy to a more sophisticated economy i.e. capital is a means of technological transformation where a backward society can easily be changed to a modern one.
• It facilitates exchange and trade and therefore encouraging commercial production.
• It facilitates the development of infrastructure, because money is used to construct good infrastructure.
• It leads to increased output of goods and services because it simplifies and quickens the production process. Capital in form machinery simplifies hard tasks which cannot easily be done by Labour and therefore more output can be realised in the production.
• It facilitates further capital accumulation by using real capital assets as collateral security, i.e. real capital enables industries or firms to get loans from financial institutions which increase the level of investment in the country.
• It facilitates industrialisation process because the money is used to build or construct industries that produce goods and services, capital in form machinery enables an economy to establish large industrial base which helps in transforming the raw materials into finished goods.
• It improves the quality of final goods because the use of machines ensures standardisation of goods.
• It improves labour skills. As labour uses machines in the production process, it acquires different skills of operating, maintaining such machines.
• Creates employment opportunities. Liquid capital facilitates investment in the country thus helping in the creation of employment opportunities.
•  It promotes technological development and technological transfer. Money capital is used to carry out research into better methods of production, at the same time it is used to buy new machines/technology from other countries. The new technology acquired improves the ability of a country to utilise its natural resources.
•  It reduces economic dependence. Capital enables the country to develop the different sectors of the economy such as agriculture, industry, tourism etc, this helps to reduce sectoral dependence.

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Negative role of Capital in an economy:

·        It leads to over exploitation of resources. The machines irrationally exploits the natural resources in the country thus cause their quick depletion.

·        Creates social costs like pollution. Most machines pollute the environment by releasing dangerous gases into the atmosphere; this reduces the quality of peoples’ lives in the affected areas.

·        Creates technological unemployment. Some machines replace human labour at places of work and this cause unemployment e.g. the introduction of the Automated teller machines (ATM) in the banking industry have reduced job opportunities for labour in the sector.

·        Capital leads to overproduction, this is because machines work at a very high speed and produce goods in excess of demand, which leads to wastage of resources.

·        Capital in form of machines is associated with accidents, these lead to loss of life, property and goods being produced.

Capital Accumulation/ Capital Formation

Capital accumulation or formation: This refers to the process of creating a country’s stock of capital goods mainly through Investment:

OR: The process of increasing a country’s existing stock of producer goods or capital goods.

Important concepts to note:

• Capital appreciation. This refers to the increase /gain in the value of capital goods /assets.

• Capital depreciation/ Capital consumption: This refers to the reduction in value of the capital assets/ capital goods having been used overtime.

OR: This refers to the wear and tear of machines of machines during the production process.

• Capital consumption allowance: This is the money or fund put aside by the business owners so as to replace the worn out capital assets by making repairs, by buying spare parts.

            Factors affect/influence/determinants of Capital Accumulation/Formation:

• The level of income: High levels of income earned by individual’s increases the amount of money saved by them or the nation .Increased savings therefore promotes capital accumulation due to increased investment. On the other hand low levels of income earned by  individuals or a nation leads to low levels of savings hindering capital accumulation due to low levels of investment.

• Level of savings: High levels of savings accelerates the level of investment in the country due to presence of investment funds, this promotes the process of capital formation in the country, while low levels of savings leads to low levels of investment due to limited investment fund, this limits the process of capital accumulation in the country.
• Political atmosphere: Political instability in an economy discourages the process of investment, this is because it scares away the potential investors due fear of losing their property and lives. On the other hand political stability promotes the levels of investment in the country, this is because the investors are not scared of losing their lives and property, and this promotes the capital formation process.

• Population growth rate: High population growth rate leads to high dependency burden which results into low levels of savings limiting investment in the country thus leading to capital accumulation. On the other hand low population growth rate leads to low dependency burden which promotes investment in the country thus leading to high levels of capital accumulation. 
• Level of development of infrastructure: A high level of development of financial institutions encourages people to save and also enables individuals to borrow funds for investment; this promotes capital accumulation in the country. On the hand low level of development of financial institution limits mobiliastion of savings and also makes it difficult for potential investors to acquire loans, limiting investment and thus low lows of capital accumulation.
• Level of entrepreneurship: High level of entrepreneurial skills in an economy leads to high levels of investment because there are many people who are ready to initiate businesses and sustain them; this promotes capital accumulation in the country. On the other hand low levels of entrepreneurial ability leads to low levels of investment because there are few people who are ready to initiate businesses and sustain them, this limits the process of capital accumulation in the country.  
• The rate of inflation. High rate of inflation in an economy discourages savings thus limiting investment funds thus leading to low  investment in the country thus low levels of capital accumulation. On the other hand low rate of inflation encourages savings which leads to high investment funds, this promotes investment thus leading to high levels of capital accumulation. 

• Size of the Market: A large market size encourages investment in the country due to high levels of profitability of doing business, this promotes capital accumulation in the country On the hand a small market discourages investment due to low level of profitability, and this limits capital accumulation in the country.
• Availability of investment incentives: Presence of investment incentives such as provision of subsidies, tax holidays etc., encourages investment in the country due low cost of doing business, this promotes capital accumulation in the county. On the hand limited investment incentives such high levels of taxation, low levels of subsidies etc. discourages investment in the country due to low levels of profitability of doing business, thus limiting capital accumulation.
• The degree of accountability. High levels of accountability encourages investment in the country because potential investors are not asked for bribes, this promotes capital accumulation in the country. On the other hand low levels of accountability discourages investment because potential investors are asked for bribes, this limits the process of capital formation in the country.
•  The level of Capital inflow and Capital outflow: High levels of capital inflows in the country leads to high level of investment because of presence of the necessary capital, this promotes the capital accumulation process in the country. On the other hand high level of capital outflows limits investments funds in the country due lows levels of the necessary capital; this limits the capital accumulation process in the country.
• Existing stock capital: High levels of capital stock encourage investment in the country this promotes capital accumulation. On the other hand low levels of existing capital stock limits investment levels in the country, thus low levels of capital accumulation.
• The time preference/ Consumption habits: This is the desire by individuals to spend their income now or later. Where there is positive time preference, it limits savings thus discouraging investment hence hindering capital accumulation. On the hand a negative time preference implies low levels of present consumption which leads to high levels of savings thus promoting investment; this encourages capital accumulation in the country.
• Demonstration effects in consumption: A high levels of demonstration effects leads to high levels of consumption, this limits savings thus low lows of investment leading to low levels of capital accumulation, on the other hand low levels of demonstration effects leads to low levels of consumption, this encourages savings thus promoting investment and hence promoting capital accumulation.
• Cultural factors/Degree of conservatism. High degree of conservatism limits the level of investments in the country because conservative people are less adventurous thus leading to low levels of capital accumulation due to low levels of investment. On the other hand low degree of conservatism encourages investment in the country because people are more adventurous and willing to take risks thus promoting capital accumulation.
• Level of interest rate on loans or savings: High interest rate on loans discourages investment because of high cost of doing business which limits profitability thus limiting capital accumulation. On the other hand low interest rate on loans encourages investment due to low cost of doing business which leads to high profitability thus promoting capital

accumulation.

• The level of monetisation of the economy/The size of the subsistence sector: High level of monetisation of the economy encourages commercial production which leads to high levels of incomes among the people; this promotes savings leading to high level of investment thus high levels of capital accumulation. On the other hand low levels of monetisation of the economy discourages commercial production leading to low incomes among the people, this limits savings leading to low level of investment and thus low levels of capital formation.
•  The land tenure system: Favourable land tenure system increase accessibility to land by potential investors which leads to high levels of investment hence promoting capital accumulation. On the other hand unfavourable land tenure system denies potential investors to land which limits investments in the country hence low levels of capital accumulation.
• The state of technology: Advanced techniques of production encourages investment in the country, this promotes capital accumulation. On the other poor state of technology discourages investment in the country, this limits capital formation in the country.      

       Factors promoting Capital formation

• High levels of income
• High levels of savings
• Low rate of inflation
• Presence of well-developed infrastructure
• Presence of investment incentives
• High levels of entrepreneurship
• Presence of large market size
• High levels of existing capital stock
• High degree of accountability
• High levels of capital inflow
• High levels of technological development
• Low population growth rate
• Low degree of conservatism
• Low interest rate on loans / high interest rate on savings
• High levels of political stability
• Favourable land tenure system
• High level of monetisation of the economy.
• Negative time preference
• Low level of demonstration effect.

      Factors limiting/hindering capital accumulation

• Low levels of income
• Low levels of savings
• High rate of inflation
• Low level of development of (financial) infrastructure
• Limited investment incentives
• Low level of entrepreneurial ability
• Low degree of accountability /high rate of corruption and embezzlement of public funds
• Low level of existing capital stock
• High rate of capital outflow
• Political instability
• Low levels of technology
• High population growth rate
• High degree of conservatism /cultural rigidities
• High interest rate on loans/ low interest rate on savings
• Small market size/limited market
• Poor land tenure system
• Low level of monetisation of the economy
• Positive time preference
• High level of demonstration effect

Measures of increasing/promoting Capital accumulation/Formation

• Controlling population growth rate so as to encourage people to save and invest because of reduced dependence burden.
• Maintaining political stability to encourage both local and foreign investors due to certainty of doing business
•  Improving on the infrastructure especially the financial institutions so as to enable them mobilize savings from people for investment.
• Extending credit facilities to investors to enable them carry out investment
• Improving on the land tenure system so as to enable investors get access to land so as to carry out investment
• Controlling inflation to encourage savings that avails funds for investment
• Provide investment incentives such as subsidies, tax holidays that encourages investment due to low cost of doing business
• Expanding the market size e.g. through joining regional economic integration which motivates people to carry out investment due to widened market and thus
•  increased profitability 
• Fighting corruption/ensure high levels of accountability
• Improving entrepreneurial skills/ability
• Encouraging capital inflow
• Providing affordable loans/credit facilities or increase interest on savings

Factors limiting mobility of capital include:

• High degree of specificity of capital
• Impossibility of relocating/Fixed nature of some capital e.g. a building is not movable
• Excessive weight of some capital goods e.g. heavy machines are not easily moved from one place to another.
• High cost involved in changing the use.
• Low payment in alternative use
• Inappropriate conditions in alternative location/use
• High cost of transporting some capital from one place to another.
• Unfavourable government policy towards movement of certain capital
• Poor land tenure system which leads to land fragmentation which does not enable the use of heavy tractors.
• Limited skilled personnel to manage capital in other locations.

b

ENTREPRENEURSHIP:

This is a factor of production that initiates business, controls, coordinates, organises and takes all the risks i.e. he/she brings together all the other three factors of production. Entrepreneurship is done by an entrepreneur who is a person or group of people who initiates the business. The entrepreneur is the highest decision maker in any business. An Entrepreneur earns profits for his/her contribution in the production process.

        Types of Entrepreneurs

• Directors
• Sole traders
• Share holders
• State

      The Functions of an entrepreneur:

• Initiating business activities. The entrepreneur is the inventor who thinks about what to produce, contributes the capital and start production.
• Moblising, organising, and coordinating other factors of production
•  Making all the production decisions on behalf of the firm since he/she owns the business.
• Coordinating business activities, he/she is responsible for monitoring supervising and all business undertakings.
• Bearing the all the risks of the business. He/she risks his capital and other resources against uncertainties in business.
• Managing the profits and losses of the firm
• Inventing and innovating better methods of production so as to increase the output and also improve the quality of output sold.

          Factors affect/influence/ determine the supply of the entrepreneurs:

• Size of the market: Where the size of the market is big, many people are stimulated to risk their capital in the business due to high level of profitability thereby increasing the supply of entrepreneurs. On the other hand a narrow market discourages potential entrepreneurs due to low profitability leading to low supply of entrepreneurs.
• Level of education and training: The high levels of education leads to high supply of entrepreneurs because such people gain the necessary skills to enable them undertake risks. On the other hand low level of education limits supply of entrepreneurs because such people fear to take risks since they have not acquired the necessary skills.
• Availability of investment incentives: presence of investment incentives such as subsidies, tax holidays etc lead to increased supply of entrepreneurs due to low cost of doing business. On the other hand limited investment incentives such as high level of taxation, limited subsidies lead to low supply of entrepreneurs due to high cost of doing business.
• Level of economic development: high level of economic development lead to high supply of entrepreneurs due to high effective demand. On the other hand low level of economic development limits the supply of entrepreneurs due to low effective demand.
• Availability of capital and other economic resources: presence of capital and other factors of production lead to high supply of entrepreneurs because there are co-operant factors of production which attracts people to initiate/start businesses. On the other hand, limited supply of capital and other factors of production lead to low supply of entrepreneurs because there are few co-operant factors of production which hinders initiation/starting up of businesses.
• Level of development of infrastructures: Well developed infrastructure like financial institutions extend loans to potential investors thereby leading to high supply of entrepreneurs. On the other hand, low level of development of financial infrastructure limits of provision of loans to potential investors, thereby leading to low supply of entrepreneurs.
• The political climate: Political stability gives confidence to potential to risk their capital and other resources in businesses thereby leading to high supply of entrepreneurs. On the other hand political instability discourages potential entrepreneurs to risk their capital and other resources in businesses thereby limiting the supply of entrepreneurs in the country.              

          Factors which limit development of entrepreneurship in developing countries:

• Inadequate training facilities: This has hindered the training of entrepreneurs and modern managers and administrators. 
• Poor infrastructures: In many developing countries the state of physical, financial, social and commercial infrastructure is very poor this limits investment in the country thus discouraging the development of entrepreneurs

• Poor state of technology In developing countries there is use of backward techniques of production; this leads to low output, low revenue, and low profits which discourages entrepreneurship:
• Limited credit facilities: Most people in developing countries do not have enough   capital for investment, even the institutions to provide loans are very limited and unwilling to lend hence hindering development of entrepreneurs
• Political instabilities: Political instability discourages investment because entrepreneurs fear to risk their capital hence limited supply of entrepreneurs.
• Limited investment incentives. This leads to high cost of production which discourages investment thus discouraging the development of entrepreneurs.

POLICY MEASURES TO PROMOTE ENTREPRENEURSHIP IN DEVELOPING COUNTRIES:

• Maintenance of stable political climate so as to stimulate local and foreign entrepreneurs.
• Encourage formation of associations to stimulate private entrepreneurship e.g. Uganda Manufacturers Association (UMA).Uganda small scale industries, Uganda private sector foundation, etc. to create dialogue between entrepreneurs and government.
• Use of fiscal and monetary policies to avail capital to entrepreneurs, like through lending at low interest rates.
• Set up training institutions to train entrepreneurs through popularizing entrepreneurship education in all schools.
•  Undertake infrastructural development. The government should embark on developing infrastructures such so as, commercial banks, insurance companies in order to encourage entrepreneurs to undertake risks in investment.
• Market expansion policy-the government should come up with policies to enlarge the market through joining economic integration and encouraging trade fairs

FORMS OF BUSINESS ORGANISATIONS:

        There are different forms of business organizations and these include;

1.     Sole proprietorship: This is a business started, owned and run by one person who contributes the capital, shares all profits and incurs losses.

Advantages of sole proprietorship:

·        She/he enjoys all the profits alone

·        She/he enjoys top secrecy

·        She/he is able to establish a direct contact with the customers and employees.

·        It is easy to start and manage

·        It is a source of employment to his/her family members

·        There is close supervision of the business activities.

     Disadvantages to sole proprietorship:

·   There is limited capital to expand the business.

·   There is unlimited liability i.e. in case the sole proprietor fails to clear the debts using business resources, his personal property is taken to pay the business debts 

·   There is lack of continuity in case the owner falls sick or if he dies.

·   There is limited management ability since all activities are performed by one person

2.     Partnership business: A partnership refers to a business unit formed with a minimum of two members and a maximum of twenty members or fifty in case of professional who pool their resources together with a view making a business in order to make profits.

Advantages of a partnership:

• Raises for more capital than sole proprietorship since there are more than two members.
• The burden of losses is distributed to all partners or members unlike in sole proprietorship
• Gives room for specialisation i.e. work is divided among the partners which increases the load for each unlike under sole proprietorship where all work is done by one person.
• Formation is fairly is simple since there are no legal requirements needed except registration of the business name, unlike in a joint stock company which involves many formalities.
• Gives room for the continuity i.e. the business may not easily collapse in case of absence of a hardworking partner unlike under the sole proprietorship where the business ends with the demise of the owner. 
• Better decisions are made because of consultation amongst the partners unlike under sole proprietorship where all decisions made by one person. 
• Partnerships give room for flexibility unlike joint stock companies.

3. Joint stock companies. These are companies made up of a number of people who are called shareholders who come together and contribute capital through buying shares.

There are two types of joint stock companies namely;

·        Private limited Liability company

·        Public limited Liability company

 Private limited Liability Company: This refers to joint stock Company which is formed with a minimum of two members and a maximum of fifty (50) members who pool their capital and management resources together with the aim of making profits.

  NB: These are not allowed to advertise the shares to the public.

  Advantages of private limited liability companies:

• A private company is free from legal restrictions which apply to the public limited liability companies.
• It can attract capital easily from the selected investing members because limited liability unlike sole proprietorship and partnerships.
• Economies of scale are easily reaped as a result of large scale operation and lump sum capital stock
•  Specialisation is possible since duties can be allocated according to the ability of each member.
• The promoters of a private company usually keep control of their business by holding majority of the shares, unlike in the case of the public company where directors are the ones to take decisions and run the business activities.

Disadvantages of private limited liability companies:

·        It cannot appeal to the general public to buy shares as in the case of public companies.

·        Shares of private companies are not easily transferable and this may be a disincentive to speculative investors.

·        Total membership is restricted in number hence the expected capital structure is limited.

·        The principle benefits of large scale activities are limited compared to public limited liability companies.

Public limited Liability Company: This is a joint stock company that is formed with a minimum of seven members but with no maximum number of shareholders who have pool their resources together to run a business with a view of making profits.

NB: The Company is allowed to advertise its shares calling upon the public to buy the shares.\

For a Public limited Liability company to be allowed to start a business it must register with a registrar of companies after fulfilling all the requirements e.g. presenting;

• Memorandum of association
• Lists of directors
• Articles of association
• Prospectus, this advertises a public limited company.

Members in a company contribute shares towards the capital of the business. Whoever buys a share become a shareholder and therefore one of the owners of the company. The shareholder is entitled to share the profits at the end of a trading period and this profit is called dividends.

NOTE; A share is a unit of capital contributed by the shareholders.

Stock exchange is a market where already issued shares and stocks are bought and sold.

ADVANTAGES OF PUBLIC LIMITED LIABILITY COMPANIES

·         There is limited liability. The financial collapse of the company does not affect the financial status of its shareholders

·        Bigger capital is raised through selling shares to the public.

·        Shares are freely transferable

·        Employees are allowed to buy shares in the company; this motivates them to work hard.

·        Companies are able to hire relevant qualified staff using the large capital at their disposal

·        Risks and losses are spread over a bigger number of shareholders than a partnership and sole proprietorship.

·        Companies have continued existence since they are not affected by the death of any shareholder.

    DISADVANTAGES OF PUBLIC LIMITED LIABILITY COMPANIES:

·        There is lack of direct control by the shareholders in the day today activities of the business.

·        Only a few shareholders take up the executive posts to run the business on behalf of the others.

·        Formation of the company has a long and expensive procedure.

·        Since all the decisions are taken up by the directors, decision making may be slow and sometimes expensive.

·          Profits are shared among many shareholders which reduces the amount received by each member.

·        The Directors may sometimes have their interests that conflict with the interests of the company.