13. What is a wage rate?

The price paid for the use of labour is called wages. Wages represent income to workers, who own their labour. Most occupations have wage rate — a standard amount of pay given for work performed. Wage rates can vary enormously from one job category to another. It differ partly because of “market forces”, and partly for other reasons that called “nonmarket forces”.

“Market forces” are expressed in terms of supply and demand. When the level of supply is large in relation to demand, wages generally are low. When the level of supply is low in relation to demand as with managers — wages generally are high.

Depending on the structure and traditions of different economies around the world, wage rates may be influenced by other factors (“nonmarket forces”) such as tradition, government legislation, labour unions, social structure and seniority.

14. What are the factors affecting the wage rate?

Most occupations have wage rate — a standard amount of pay given for work performed. Wage rates can vary enormously from one job category to another. There are many different factors that can influence wage rates. They differ partly because of “market forces”, and partly for other reasons that called “nonmarket forces”.

“Market forces” expressed in terms of supply and demand. When the level of supply is large in relation to demand, wages generally are low. When the level of supply is low in relation to demand as with managers — wages generally are high.

Depending on the structure and traditions of different economies around the world, wage rates may be influenced by other factors (“nonmarket forces”) such as tradition, government legislation, labour unions, social structure and years of work experience of the employees and the area of practice.

15. What is the difference between physical and financial capital?

Capital is one of the factor of production. Economists distinguish two types of capital: physical capital and financial capital. There are some differences between them.

Physical capital — the tools, equipment and factories used in production of goods and services. It is a produced factor of production, a durable input which is itself an output of the economy. For example, we build a textile factory and use it to produce shirts, or assemble a computer and then employ it in educating students.

Financial capital refers to the funds provided by lenders (and investors) to businesses to purchase real capital equipment for producing goods/services. Financial capital is provided by lenders for a price: interest.

Furthermore, financial capital, is any liquid medium or mechanism that represents wealth, or other styles of capital. It is, however, usually purchasing power in the form of money available for the production or purchasing of goods, etc..

16. What is entrepreneurship?

Entrepreneurship, the managerial or organizational skills needed by most firms to produce goods and services, is the fourth factor of production. Entrepreneurship is the willingness of business owners to take risks and introduce new products and services to the market. Entrepreneurship plays an essential role in initiating the process of production.

The entrepreneur brings together the other three factors of production — land, labour and capital. When they are successful, entrepreneurs earn profits, the return or reward for the risks, innovative ideas and efforts put into the business. When they are not successful, they suffer losses.

Entrepreneurs serve an important role in enabling the economy to adjust to changing conditions and new possibilities for material improvements by creating new business enterprises, and even whole new industries.