The Mobility of the Factors of Production
- The mobility of the factors of production refers to how easily firms can switch between different factors of production during the production process
- The more mobile the factors, the more flexibility there will be in production
- E.g. if a firm can produce both cars & trucks on its production line & switching from one to the other only requires a few simple changes to some robotic arm extensions, then its capital is very mobile
- This means that the firm can be very responsive to changes in demand for cars & trucks & is likely to make more profit
- Labour is often one of the most expensive costs of production
- If firms can substitute capital (machinery) for labour, productivity often increases & costs decrease
- If firms can substitute capital (machinery) for labour, productivity often increases & costs decrease
- Many firms rely heavily on labour & ensuring labour mobility helps to lower unemployment & reduce worker shortages in an economy
Two Factors That Cause Labour To Be Less Mobile
Geographical Immobility of Labour |
Occupational Immobility of Labour |
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