Category: Commerce Notes PPT

Both the Comparative and the Common-Size financial statements give a more or less view of the financial statement of the company. Common-size financial statements present all the financial items under their head in percentage terms. While the Comparative financial statements present the financial data for numerous years side by side. This data is to be presented in the form of absolute values, percentages, or both.

The striking difference between the comparative and the common size financial statements is that comparative financial statements present the financial information for several years side by side in the form of absolute values or percentages or both. Whereas the common size financial statements present all these items in percentage terms more often.

Comparative Financial Statement

The Comparative financial statements are the set of complete financial statements an entity issues, by revealing its information for more than one reporting period. The financial statements which are included in this statement are:

• The Income Statement shows the results for multiple periods.

• The balance sheet shows the financial position of the entity.

• The cash flow statement is defined as more than one period.

Variation of comparative concept also exists which is to report the information for each of the 12 previous months. The comparative financial statements are quite useful for the following reasons:

• This provides a comparison of an entity’s financial performance over multiple periods, which will help to determine the trends of the business. 

• The statements also reveal unusual spikes in the information which will help to indicate the presence of accounting errors. 

• This statement also enables a comparison of the expenses and revenues. This will help in the process of Cost Management. 

• The statements predict future performance.

Are Comparative Financial Statements Required?

A comparative statement is a type of document that is used to compare a particular financial statement with the period statements. The Previous financials are presented alongside the latest figures in side-by-side columns, this enables the investors to identify the trends, the track on which a company’s progress is determined and the same can be compared with industry rivals.

Comparative statements are used to figure out finances which is a good practice for the business owner. 

Common Size Financial Statement

The common size income statement is another type of income statement in which basically each line item is expressed as a percentage of the value of revenue or the sales. Common size financial statements analyze and then compare a company’s performance over several periods with varying sales figures.

Analysts analyses this common size as an income statement whereby dividing each line item (for example, gross profit, operating income, and sales and marketing expenses) by the top line (sales). Then this item is then expressed as a percentage of sales.

Example of a Common Size Income Statement

The standard figure that is used in the analysis of a common size income statement is the total sales revenue. The common size percentages are then calculated to show each line item as a percentage of the standard figure or the revenue.

This is quite important to note that the common size calculation is the same as calculating the margins for a company. The net profit margin is the net income that is divided by the sales revenue, and this is typically the common-size analysis. This is the same for calculating the gross margin (sales revenue minus the cost of goods sold, divided by sales revenue), and the operating margin (that is the gross profit minus the selling & general administrative expenses, divided by the sales revenue).

Difference Comparative Financial Statement and Common Size Financial Statement 

The main differences between the comparative analysis and the common size analysis are chalked as follows −

Comparative Analysis

• This analysis shows the previous year’s financial results which occur side by side along with the changes in the amount or its percentage.

• This compares the current year’s results with the base year.

• This is a horizontal analysis.

• The results are expressed in both forms – percentages as well as pictorial form.

• Both provide an inter and intra firm which can be compared.

• This helps in internal decision making.

• The statements are useful to compare results with their previous financial years.

• Quite an importance of individual figures is shown in a statement with a comparative analysis.

Common Size Analysis

• This shows the results of the same year in percentage form.

• Common Size analysis compares figures of the same year.

• This is a vertical analysis.

• The results are to be expressed in percentages only.

• Only inter-firm are required to be compared.

• This common size statement prepares the references for the stakeholders.

• This is used to compare the company’s results with their competitors.

• This shows the relative importance of the individual figures in the statement.

The ‘dissolution of a firm’ is a major term used for the ‘partnership firm’ precisely. The dissolution of the firm takes place for numerous reasons like dissolution by agreement, dissolution by legal notice, insolvency of the partners, or simply if the partnership firm is illegal in nature. In case of dissolution of the firm, the entire firm halts from the operation. This is quite different from the ‘dissolution of partnership’. 

Thus, in this context let us know more about the dissolution of the ‘firm’ and its difference from the ‘dissolution of partnership’.

What is the Dissolution of a Firm?

Dissolution of a firm refers to the dissolution of an existing partnership that owns and controls a firm or an organization. While numerous reasons can lead to the partnership’s dissolution in a firm, usually a concerned organization is also dissolved under these circumstances. However, this may not always be the case.

 

While understanding dissolution meaning, students must note that according to the Partnership Act, 1932, “The dissolution of a partnership between all the partners of a firm is called the dissolution of the firm”. By definition, this distinguishes between the dissolution of a firm and that of a partnership.

 

Only in the event of an existing agreement among a firm’s partners can it be reconstituted without any dissolution despite the partnership being dissolved. Consequently, a firm’s dissolution always involves the dissolution of a partnership, while it’s inverse may or may not be accurate and depends on existing agreements.

 

Types of Dissolutions

While learning how is a firm dissolved, students must note these ways mentioned below:

1. Dissolution by Agreement: A firm can be dissolved with an agreement among its existing partners, though it should meet the following criteria:

2. Mandatory Dissolution: Circumstances under which a firm is dissolved compulsorily are as follows:

• When one or more partners of a firm become insolvent, making them incompetent to enter any contract or agreement.

• If it becomes unlawful for a specific partnership firm to continue its business and revenue generation. Notably, this is not the same as that of dissolution by court order. An example in this regard would be when a partnership firm has a foreign partner and war is declared by this firm’s country of origin on that of its foreign partner. Under such circumstances, this firm must be dissolved.

3. Emergency Dissolution Due to Contingencies: A firm can be dissolved based on an existing contract among its partners only under these circumstances that are listed below:

• If a firm was established for a fixed tenure and that term has expired

• If a firm was established for a specific venture and that venture has been completed

• A partner’s demise

• If a partner of a firm becomes insolvent

4. Dissolution by Notice: If the partnership of a firm is at will, one of its partners can issue a notice for its dissolution. It must be issued in writing to all the existing partners and clearly state his/her intention towards dissolving a firm.

5. Dissolution by the Court: When one of the partners of a firm files a legal suit, a court of law can direct the dissolution of a firm. That can be done on any of the following grounds described below.

• If a partner loses mental stability

• If one partners becomes incapable of fulfilling his/her duties

• When a partner is found guilty of any misconduct that goes on to affect this firm’s business adversely

• If one or more partners turn their whole interest in the partnership to a third party

• When a lawful court deems its dissolution just

Settlement of Accounts

Accounts settlement after the dissolution of a firm, are directed by provisions included in the Indian Partnership Act, 1932. These provisions mention these following guidelines.

1. A firm will pay for its losses and liabilities, including capital deficiency from its profits. If this profit is inadequate to clear its losses, a firm must pay for it from its partners’ capital. If it still does not clear all a firm’s losses, partners will have to clear it in the same ratio as that of their profit sharing.

2. When the firm is dissolved, its assets are applied to make for existing deficiencies and losses. The firm should begin by clearing third-party debts, followed by loans and advances made by any partner. Once these debts are cleared, the capital of every partner must be cleared. If a firm still has surplus funds, it should be divided among partners in the same ratio as that of profit-sharing.

Any human activity which is performed in exchange for money or money’s worth is known as an economic activity. For example, workers work in the factory to earn wages.  On the other hand, any activities which do not have any monetary motive and are performed with a feeling of love, sympathy, humanity, are known as non-economic activities. For example, playing in a garden, dancing, housewife cooking dinner for the family, or a boy helping an old man crossing a road, etc.  Read on to know more about economic and non-economic activities and how they differentiate.

What are Economic Activities?

Economic activities are those activities that are based on the production, distribution, exchange, and consumption of goods and services. Economic activities are carried out by human beings to earn their income and to acquire wealth. For example, a trader, an agriculturist, a manufacturer, a doctor, a teacher, and laborers working in a factory are all examples of economic activities. These activities are performed by people to earn their livelihood and to acquire wealth.

The essence of economic activities is the production, distribution, exchange, and consumption of goods and services. The return of economic activities can be expressed in monetary terms. A businessman earns profit, a doctor charges fees for his services, or a farmer grows vegetables to sell in the market.

What are the Characteristics of Economic Activities?

The principal characteristics of economic activities can be summarized as follows 

The primary motive of economic activities is to earn profit and consequently acquire wealth. These activities are undertaken by individuals to earn their livelihood through economic gain.

Undertaking economic activities require utilization of resources like land, labor, capital, etc.

Economic activities involve maximization of profit by allocating scarce resources rationally. This includes making optimum utilization of land, labor, capital and every other factor involved in production.

Activities that are performed for monetary gain can be termed economic activities only if they are lawful.  For instance, activities like burglary, theft, smuggling, etc. cannot be included under the purview of economic activities since they are unlawful.

Economic activities undertaken must adhere to social norms. They cannot be socially undesirable.

What are the Different Economic Sectors Where Economic Activities are Performed?

The different economic sectors where economic activities are performed includes the following:

• Primary Sector

• Secondary Sector

• Tertiary Sector

• Quaternary Sector

• Quinary Sector

Let us discuss each sector in brief.

The primary sector of an economy mostly involves the production or extraction of raw materials. Primary economic activities include agricultural activities (both commercial and subsistence), forestry, mining, grazing, quarrying, fishing, hunting as well as gathering. Processing raw materials and their packaging are also included in this sector. 

            

India is a country where a large portion of the population is engaged in the primary sector, especially agriculture.

This is the sector of the economy, which is involved with the production of finished goods from the raw material supplied by the primary sector. This sector involves all the manufacturing, processing and construction jobs of an economy.

Few of the activities that are associated with this sector include smelting, metalworking, textile and automobile production, construction work, work at chemical and engineering industries, etc. This sector employs a mixture of organized and unorganized workers.

The tertiary sector mostly denotes an economy’s service industry. In this sector, the economic activities include selling goods produced by the secondary sector, as well as providing commercial services to the general population and other sectors of the economy. The economic activities undertaken in the tertiary sector include wholesale and retail sales, restaurant business, distribution and transportation of goods and services, etc.

While these are the three major classifications of sectors in an economy, few countries also include the sections mentioned below –  

Closely associated with the tertiary sector, the ventures under the quaternary sector include intellectual activities that are linked to technological innovations. Some of the economic activities associated with this sector include those in the fields of information technology, research, education, culture, library, etc. In India, currently, most of the individuals engaged in the organized sector can be included in the quaternary sector of the economy.

This is the sector that comprises top executives and professionals involved in government jobs, universities, science, culture, healthcare, etc.

 

Examples of Non-Economic Activities

Following are the some examples of non-economic activities:

There are various non-profit organizations working towards social welfare without any monetary gains. Volunteering such an organization comes under the category of non-economic activities, since an individual does so without expectations of any financial benefits.

Many people decide to pursue their hobbies or engage in activities that do not produce any monetary remuneration during their leisure time. Such activities come under the =category of non-economic activities.

Visiting a temple and offering prayers, engaging in cultural activities, etc. are included under non-economic activities because they are mostly performed to fulfill one’s spiritual needs rather than monetary ones.

If a doctor provides healthcare to his/her family members or a teacher teaches his/her own children, these activities are  considered as non-economic activities. This is because the professionals undertake these activities as an obligation towards their families and do not earn any monetary profit from them.

Thus, any activity that is not included under the category of economic activities and does not generate any financial gain comes under non-economic activities. 

 

Characteristic of Non-Economic Activities

 Non -Economic activities are characterized by the following features: 

• Self-Satisfaction- Non -economic activities are voluntary in nature and undertaken solely for self-satisfaction.

• Obligatory- Non-economic activities can also be undertaken as an obligation or compulsion to satisfy social norms, even though they do not generate any monetary profit.

• No Financial Remuneration- The most important characteristic of any such activity is that it does not bear any financial profit for the person undertaking them. That is why these activities cannot be considered vital for an economy. These are merely for recreation or are socially binding.

Economic Activities and Non- Economic Activities Differences:  Tabular Representation

Conclusion

With the above discussion, it is concluded that the only factor which differentiates both the economic and non-economic activities is their objective. The same activity can be economic and non-economic simultaneously. For example,, Suppose a father is dropping his child at school in his car, this is a non-economic activity, as he drops his son out of affection and care, but if there are five other children along with his going in the car who pays money for conveyance to him, then that is is considered as an economic activity, as the person is getting money for service he is providing.

Every industry faces changes in its trends. The business industry also witnesses different changes in its working which are emerging over time. These changes are known as business trends. These business trends have changed the way of conducting businesses completely. Let’s explore some of these trends and get to know about them. The names of some business trends are network marketing, franchising, e-commerce, business process outsourcing, knowledge process outsourcing, etc. 

 

Various Trends in Business

Many business owners tend to overlook the latest emerging trends in it, which ultimately impacts negatively. The business sector requires people to stay up to date with emerging trends in business. It is mainly because this sector changes quickly (the way business is being conducted), and hence to stay at the top of your game, you need to be aware of the emerging trends in it. In this article, we will make you familiar with the latest trends in the industry, such as emerging trends in e-commerce, network marketing, franchising, digital economy and many more. Reading this article will help you further advance your business and boost your profit margins. Let us start by looking at E-commerce and emerging trends in e-commerce. 

 

E-Commerce

E-commerce has been one of the best ways in recent years to take your business online and open your market to the whole world. It essentially means buying and selling goods over the internet. You can deliver your products right to the doorsteps of the customer. It will inevitably boost your conversion rates and the number of sales. There are currently several emerging trends in the e-commerce industry such as Amazon, eBay, etc. Whether you have your business online or want to set it up online, you must be aware of the emerging trends in e-commerce.  

 

The other names of e-commerce are electronic commerce and internet commerce. E-commerce is the buying and selling of goods and services through the internet. Everything is done through the internet network. Transactions of money and data also come under e-commerce. There are four ways in which these business transactions are being done and they are – Business to business, customer to the business, business to customer and customer to customer. The name itself signifies that e-commerce is the meeting of buyers and sellers over the internet. The things involved in it are as follows – transaction of goods and services, transaction of money and exchange of data. The latest examples of e-commerce websites are Amazon, Myntra, Ajio, Flipkart, Zivame, Meesho etc. 

Network Marketing

Network marketing is one of the best emerging trends in the business environment. It is essentially a medium used by manufacturers to increase their sales. In this method, manufacturers rely on their distributors and their sub-distributors to form an efficient chain or network of delivering products to the customers. This chain of distributors will enable you to reach a huge number of customers and increase your products’ sales. 

 

The emerging trends in the field of marketing have changed the way of working of businesses in a complete manner. The new types of marketing are helping the companies in attracting a large number of customers and helping them in expanding their business rapidly. The expenses are also being reduced in these trends as compared to traditional marketing. One of those trends is network marketing. 

Network marketing is considered to be a medium of marketing that businesses use so that they can expand their sales. Is usually used by manufacturers when they have to push out their products and deal with a lot of distributors. Indirectly, they reach out to more customers which eventually is beneficial for them. Network marketing is generally used in business structures that need multi-level marketing because these manufacturers have a large number of products and services and involve a large number of distributors and sub-distributors. 

Franchising

The latest business methodology also includes franchising as one of the emerging trends in it. Franchising can be an incredible way to expand your business even further. It mainly involves providing your business’s rights or license to a third party called a franchise, and you will be the franchisor. You will let another party conduct the business on your behalf and receive some profit from that. 

 

Franchising is considered to be a right that the manufacturers or business entities give to others. In franchising, one party (known as franchisor) allows or gives the authority to the other party (known as a franchisee) to sell the products or services of the franchisor. Franchisees are authorised to use the brand name, its trademark and other things. Basically, a franchisee is just like a dealer. In return, franchisees have to pay a commission or one-time fee to the franchisor. In other words, we can say that franchising is the agreement between two parties, in which one party allows the other party to sell its products or services by using their techniques which used to be confidential. A lot of examples are there in the market these days like McDonald’s, H&M and Dominos.

Digital Economy

As the name suggests, the digital economy means taking all of your economic transactions online. In other terms, it is also known as the internet economy or the web economy. As you know, technology is expanding like wildfire, and sooner or later, the traditional and digital economy is bound to be one. It essentially includes all the businesses that are conducted via digital technologies or the internet. Also, it includes businesses such as e-business, e-commerce, etc. So be aware of recent trends in commerce.

Business Process Outsourcing

Business process outsourcing or BPO has been one of the fastest emerging trends in the business sector. It is a huge industry now and also has a significant impact on our global economy. Huge businesses tend to outsource their business process job to third parties from different countries which helps them cut down their costs and increase profit margins. Overall you can outsource a certain task of your company or business to another company at a low cost.

 

A business strategy where one company hires another company for a particular task to perform that means they are outsourcing a certain job of their company and this is known as business process outsourcing or popularly known as BPO. It is necessary and essential to outsource the non-core activities of the company so that they can focus more on the core activities for making it more productive. Companies outsource only non-core activities and do not outsource the core activities. BPO makes a company more flexible and more focused on its main goal or its main activities. It is also very cost-effective. 

M-Commerce

M-commerce, also known as mobile commerce, is a type of e-commerce. It is also one of the emerging trends in the e-commerce industry. This method brings forward a way for you to get your business to the mobile phones carried around by people in their pockets. You are providing ease of access to your customers, which will ultimately boost your sales significantly and also increase your profit margins by a great deal. These days, most people like to shop online using their phones, so this trend is not something to ignore for business owners.

Aggregator

The aggregator is one of the unique and emerging trends in the business sector. We have loads of information available on the internet via thousands of websites. To put it simply, the aggregator is a way for you to combine all of the information available on a certain topic in a single place. It will provide convenience to the people who are searching for that particular information.

Knowledge Process Outsourcing

Knowledge process outsourcing or KPO essentially means outsourcing different business tasks related to information such as analysis, consultancy, research, or high-level tasks. Businesses who do not have the human workforce to conduct such tasks efficiently tend to outsource them to other companies. These KPO companies are mainly there to help these companies complete such tasks, and they have a dedicated workforce precisely for that purpose. 

 

Knowledge process outsourcing is just like business process outsourcing but in KPO, knowledge-based tasks are being outsourced like analysis, researching, a consultancy. Knowledge process outsourcing can be done either by any other company or by the subsidiary of the same organization. The most famous companies providing knowledge process outsourcing are TCS, Wipro, WNS global, etc. The advantages of knowledge process outsourcing (KPO) are – they are cost-effective, they can access the best talents, resources are being utilised in a better way. 

Fun Facts

Since the coronavirus pandemic, global e-commerce sales are predicted to reach over 4.2 trillion dollars and make a whopping 16.2% of total retail sales.

When you have set the right ideas and rules, many businesses can run efficiently. Those regulations assist the companies to recognize how to act in every circumstance. Therefore, ethics are fundamental elements of any business. There are managerial ethics which the leaders within the agency need to observe so that companies can run well. This is the simplest answer to your question: what is managerial ethics?

Basis of Managerial Ethics

Any commercial enterprise, to be successful, desires to have a robust foundation of the elements of business ethics. If you wish to learn more about what is managerial ethics, you must know that managerial ethics are constructed upon the four key factors. Here are those:

Schooling in Ethics

When you build ethics inside the business, you need not have to recognize or observe your enterprise much. It becomes far simpler for you to manage everything smoothly. There is the relevance of it for the employer. This is why many corporations have their in-house schooling departments.

Those departments can offer the requisite vital education required via the personnel as well as the leaders of the corporation. A trainer always prepares himself or herself with the task of supplying the education of ethics. He nicely equips himself or herself with sufficient knowledge within the area of ethics. This helps him or her to become productive and vigilant.

Sturdy Code of Ethics

As we mentioned above, the elements of business ethics are the spine of any corporation. This is why it’s far essential to have a robust code of ethics in the corporation. The Sarbanes Oxley Act in 2002 also stated that the groups need to have an ethics code of conduct compulsorily. This means that there must be a code in writing which every employee can observe and attempt on it.

Similarly, this also informs the personnel to research the various critical components on how to speak to their veterans and a way to carry out their moves on the place of business. This will act as a reminder. It also acts as a reference when they are pressing hard to do something which they are not cosy with.

Private Reporting System

It allows the person to record something in the workplace after they discovered it to be misconduct or a refusal. Also, this provides discouragement to the folks who are involving themselves in such acts. This system facilitates in presenting the whole lot related ‘to do something about’ alternatives to the paintings. Further to this, if the misconducts are resolved early, the company may be able to store a considerable amount of money in the future.

Ethics Coach

Just as the employees require training in ethics, there must additionally be someone friendly and maybe to be there for any issues associated with ethics. He needs to be a private resource in matters of employees. The individual must be capable of remedying every ethical quandary within the corporation. He desires to have sufficient know-how required for the process. He ought to be aware of the ideas and must be able to make the choices required.

Managerial Ethics Definition

Managerial ethics is a simple part of business ethics. It sets the moral standards or beliefs that affect the behaviour of personnel. At the same time, as most people robotically expect that ethics directly correlates to laws, this is not the case. Doing the right issue for employees and clients and demonstrating the willingness to go the extra mile also falls beneath managerial ethics. While developing managerial ethics regulations, you must consider everything. Starting from compensation and benefits packages, network involvement and company giving is all components of managerial ethics. The policies set the minimum requirements that enterprise leaders assume from the organization down to its humans and network.

Sorts of Managerial Ethics

Managerial ethics are damaging down into primary sorts: people who pertain to felony troubles and those that relate to ethical concerns. Organization leaders have a desire, they can do the bare minimum in terms of ethics, or they can set a higher standard in their enterprise and community.

Criminal ethics bear in mind the numerous guidelines for any organization. There are human resources troubles which include making sure that humans are hired in an honest process. You must give a secure painting surrounding and fair pay. Managers and employees should not smash legal guidelines by way of harming, harassing or in any other case infringing on every other individual’s rights. They must meet the minimum safety requirements, in addition to the work requirements set forth using the Occupations and safety fitness administration (OSHA).

Ethical requirements of ethics don’t always want to align with an enterprise’s prison requirements. An organization won’t be required to offer paternity leave, but the organization would possibly believe that it’s far vital to provide fathers their own time with a new child. -Ethical ethics could also be how the organization deals with consumer lawsuits to make sure that people feel top approximately their experience with the corporation from the pinnacle down.

Any form of physical or mental exertion is referred to as labor. Labor is defined as the efforts made to generate any products or services in economic terms. It encompasses all forms of human activities – physical exertion, mental activity, intellectual use, and so on – that are performed in exchange for monetary benefit.

In economics, factors of production are the resources and inputs that are used in the process of production to produce an output, finished goods, or services. The three basic factors of production are given below.

1. Land

2. Labor

3. Capital  

4. Entrepreneurship

In this section, we shall learn about labor, the major factor of production. 

What Does the Term Labor Mean? 

In terms of Economics, the term labor refers to the efforts exerted by humans to produce the final goods and services. So, you must be wondering what is meant by labor as a factor of production? It is simply all types of human efforts, including physical, mental, knowledgeable, and intellectual that are exerted, to get an economic reward. Therefore, it can be defined as the physical or mental effort by a human in the process of production. It comes under the category of primary factors of production. 

Now, we shall discuss in detail the features of labor as a factor of production. 

Characteristics of Labor as a Factor of Production

Unlike other factors of production, labor pertains to living beings. To explain the true meaning of labor as a factor of production, you must be well aware of all the characteristics of the same. Some important features of labor as a factor of production are discussed below.

1. Perishable in Nature

The term perishable means something that cannot be stored or saved for long, as we know that labor is the flow of service of a laborer. It cannot be stored, which means that if a worker skips one day of his work, he cannot utilize this labor the next day. A day without work cannot be revived. Hence, labor is considered as highly perishable. In nature, labor is perishable. This simply implies that it must have sufficient storage capacity, as labor cannot be stored. If a worker fails to show up for a shift, his or her labor for that shift is fully lost. It is not possible to preserve it and use it the next day. That labor is irreversibly lost. A laborer cannot save his or her work for later use. As a result, we might conclude that labor is a very perishable input of production.

2. Labor Stands for Human Efforts 

Unlike other factors of production, labor is directly related to human efforts, including both physical and mental efforts by a person. When a person works for hours intending to produce the final product or goods or services, he also needs to rest. This implies that the laborer’s actual presence is required. To offer his services, the laborer must be physically present at the location where the goods or services are produced. He and his labor-power are inextricably linked. As a result, we cannot expect a welder to work from home; he must be present at the job site. Hence, it proves that labor is human effort. Some significant factors of labor are as follows.

1. Fair/good treatment of workers.

2. Providing a suitable and comfortable environment for workers.

3. Workers must not be forced to work extra time at low prices. 

4. As a worker, the person must be honest and hardworking.

3. Labor Cannot be Separated from a Laborer

To use labor, the physical presence of a laborer is essential. Labor is simply the services provided by a person. So, the person selling the services must be present at the site of production during the time of production. For example, a welder or a builder can not work from home. To carry out the process of construction, he must be physically as well as mentally present at the site. Therefore, one can say that labor-power exists only as long as the laborer exists. In comparison to other factors of production, labor is distinctive. Unlike the others, it is directly tied to human labor. As a result, when it comes to labor, some unique considerations must be made. Fair treatment of employees, relaxation periods, a proper work atmosphere, idle time, and so on are only a few examples.

4. Labor is Heterogeneous in Nature 

This statement means that every labor is unique in his own way. Each individual possesses different qualities and abilities that he or she can use at the workplace. Everybody may have different qualities, hence, must never be the prey to any comparison. We can’t expect labor to be evenly distributed. Every laborer is different, so his labor-power will be different as well. The quality and efficiency of labor will be determined by the laborer’s talents, work environment, incentives, and other inherent qualities.The quality of work may differ depending upon the following factors.

1. Work environment provided to the person.

2. Skills that an individual possesses. 

3. Perks or incentives offered to the person. 

4. Inherent qualities of individuals.

5. Low Bargaining Power

Labor doesn’t have a standard price. Many times, due to lack of employment, illiteracy, and other factors laborers are forced to work at relatively lower prices for the sake of their livelihood. Their skills and work cannot be stored for later utilization. People usually take advantage of a laborer’s unfortunate situation and poor living conditions and make them work on lower wages. When compared with the services of an employee, a laborer has very low bargaining power. The need for money to live compels them to accept the low wages that they are offered. The buyer of services has very little bargaining power with labor as a factor of production. It can’t be kept, isn’t particularly movable, and doesn’t have a set price or reserve price. As a result, most laborers are forced to accept whatever pay the employer gives. Laborers have very low bargaining power in comparison to the employer.

6. Not Easily Mobile in Nature 

Now you must be wondering, why cannot a labor move to the site of production for work? A laborer in need of money and searching for work can surely relocate to the site of production. However, many factors including, the family’s responsibility, traveling expenses, and the unsafe environment makes the situation difficult for him. Whereas, if we talk about other factors of production, such as goods and raw materials, these can easily be transported from one place to another. Therefore, in comparison labor is less mobile than other factors of production. Labor is a movable factor of production, meaning that laborers can relocate to the job site. However, there are numerous impediments to labor mobility from one location to another. As a result, we might claim that labor is less mobile than other components of production such as capital.

7. Inelastic Supply 

Let us understand this with an example. Suppose, during the construction of a cinema hall in a metropolitan city, there is a shortage of skilled laborers. So, in such a case, his work might get delayed, but the skilled laborers cannot be generated suddenly. Even the movement of labor from another place for the construction of that particular cinema hall will take considerable time, effort, and relatively higher expenses. Thus, it is correct to say that supply of labor in a market is inelastic as it cannot be increased suddenly with the increase in demand. 

8. Efficiency can be Increased 

If any person is given adequate education, his efficiency to work or to provide labor can be raised. Proper guidance, learning opportunities, and experiences play a vital role in the process of increasing the efficiency of a laborer. 

9. Decision Power

Unlike capital, land, other primary and secondary factors of production, labor can make rational decisions regarding his or her job. Hence, labor possesses decision making power.