An economy can produce more when it has more factors of production or better ones.
The quantity of a factor is how much of it there is. The quality is how productive each unit is. Both can change over time, and both affect how much an economy can produce.
The quantity of land can rise through land reclamation or finding new resources. It falls when soil wears away or resources run out. The quantity of labour rises with population growth, immigration or a later retirement age. It falls when people emigrate or the population ages.
The quality of labour rises through education, training and better healthcare. Skilled and healthy workers produce more. The quantity of capital rises when firms buy new machines. Its quality rises with better technology.
Enterprise also changes. Lower taxes on profit, simpler rules for starting a business and easier loans can lead more people to take the risk of starting a firm.
- Quantity of a factor
- How much of it is available.
- Quality of a factor
- How productive each unit of it is.
- Raises labour quality
- Education, training, healthcare.
Worked example: Singapore growing its land and improving its labour
Singapore has very little land, so changes in its factors of production matter a great deal.
- Quantity of land: land reclamation has enlarged Singapore's land area by about a quarter since independence.
- Quality of labour: SkillsFuture, launched in 2015, gives adults credits to take training courses, raising skills.
- Quality of capital: automated cranes and driverless vehicles at Tuas Port let each worker handle more containers.
Watch out for this
More workers always means better quality labour.
Quantity and quality are different. More workers raises the quantity of labour. Quality rises only if each worker becomes more productive, for example through training.
Check your understanding
Which change increases the quality, rather than the quantity, of labour?
- Workers complete a course in using new software.
- The government raises the retirement age.
- More foreign workers enter the country.