The factors of production are the inputs used to produce a good or service in order to produce income. Economists define four factors of production: land, labor, capital and entrepreneurship. These can be considered the building blocks of an economy.

There are four factors of production—land, labor, capital, and entrepreneurship.

The four factors of production are land, physical capital, human capital, and entrepreneurship. The reward for land is rent, for capital is interest, for labor or human capital is wages, and for entrepreneurship is profit.

Factor mobility refers to the ability to move factors of production—labor, capital, or land—out of one production process into another. Factor mobility may involve the movement of factors between firms within an industry, as when one steel plant closes but sells its production equipment to another steel firm.

Government policy plays a significant role in the mobility of labor and capital, including:

Employment protections: Governments can loosen employment protections to stimulate worker mobility. This frees up resources for recombination outside of established organizations. However, excessive employment protection can lock up assets in large organizations.

Wage incentives: Governments can allow wages to adjust to business conditions at the firm level. This can encourage workers to move from low to high-productivity firms.

Wage floors: Governments can set wage floors to promote decent jobs and reduce poverty. Wage floors can also control market power that companies may have over workers.

Social protection: Governments can provide social protection to workers, such as mandatory severance pay provisions.

Public employment programs: Governments can increase budget allocation to public employment programs.

Foreign Direct Investment (FDI): Governments can use FDI as a way of reducing unemployment.

Solution. The supply of land is fixed and supply of any other factor is variable over time. Land is immobile while any other factor of production can move from one place to another place or one useful occupation to another occupation.

In conclusion, the mobility of factors of production plays a significant role in supply. High mobility can lead to increased supply, while low mobility can limit the ability to increase supply.

It has moved toward even greater economic integration by becoming a common market—an arrangement that eliminates impediments to the mobility of factors of production, such as capital and labor, between participating countries.

Industries that benefit from high factor mobility include those that can easily move their factors of production, such as labor, capital, or land, between different production processes:

Auto industry: Mechanics can move to airplane maintenance if airlines offer higher wages.

Steel industry: A steel plant that closes can sell its production equipment to another steel firm.

Textile industry: A worker can leave a textile firm and start working at an automobile factory.

Factor mobility can occur within an industry or across industries. In the long run, all factors are mobile at some cost.

The mobility of factors of production can affect income distribution within a country by:

Ensuring equal wages

When labor is mobile, it can ensure that wages are equal in the production of different goods.

Determining factor prices

Factor prices are the payments made to each factor of production, such as wages for labor, rent for land, and interest for capital. These prices are determined by the equilibrium of supply and demand in the factor's market.

Impacting supply

The mobility of factors of production can significantly impact the supply of goods and services.

Factors of production are the resources used to produce goods and services, and include land, labor, capital, and entrepreneurship. The ease with which these factors can be moved from one productive use to another is known as their mobility.