1. Analyzing the Factors of Production

Economist Alfred Marshall (1842-1924) exerted much influence on the British. In this excerpt from his Principles of Economics, Marshall speaks about what distinguishes the factor of land.

Land is on a different footing from man himself and those agents of production which are made by man; among which are included improvements made by him on the land itself. For while the supplies of all other agents of production respond in various degrees and various ways to the demand for their services, land makes no such response. Thus an exceptional rise in the earnings of any class of labor, tends to increase its number, or efficiency, or both; and the increase in supply of efficient work of that class tends to cheapen the services which it renders to the community. If the increase is in their numbers then the rate of earnings of each will tend downwards towards the old level. But if the increase is in their efficiency; then, though they will probably earn more per head than before, the gain to them will come from an increased national dividend, and will not be at the expense of other agents of production. And the same is true as regards capital; but it is not true as regards land.

Please answer the following questions:

  1. What is the central theme of this paragraph?
  2. What is meant by "land makes no such response"?
  3. According to Marshall, what is the relationship between land, labor and capital?
  4. Marshall, in another portion of his book, states that land is but a particular form of capital from the point of view of the manufacturer. Is this a contradiction? Explain.
  5. Give other examples of how capital and land are considered the same thing.

2. Classifying Terms

Classify each term from the list below as either capital, labor or land. If you do not think that the item belongs in any of the categories, place it in the fourth column, non-applicable -- and explain why you put it there.

  • taxi cab
  • salesperson
  • store owner
  • factory
  • apple pie for your dessert
  • savings bond
  • CEO of GM
  • teacher
  • school bus
  • personal computer
  • air
  • tires
  • river
  • slave
  • flowers for your sweetie
  • a $10 bill
  • forest
  • wild boar


You and your friends have been doing a good business at the hot dog stand you have been operating on weekends in a local parking lot. Sales are brisk! You have decided that, rather than just blowing your profits on a big party, to invest in a way to expand your business and -- you hope -- bring in even more profit. You have been selling 200 hot dogs each weekend at $1.00 each. Supplies cost you $100, and rent for your space in the parking lost was $25. You and a friend each spent five hours working at the stand. That means you have $75 left to divide between your wages, and money to invest in expanding your business. The more wages you pay yopurself and your helper, the less you will have to invest.

Now that you know the definitions of the three factors that you need in order to produce wealth, perhaps this knowledge can help you approach this business decision.

In groups of four or five, discuss your plan for investing your hot-dog profits. Identify and evaluate specific investments in additional land, labor and capital -- and try to estimate, as best you can, how many additional dogs each option will allow you to sell, and how much profit the investment will bring in.

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