Question

Which production factors are easiest to influence through government policies?

Answer 1

Labor and capital can be more easily influenced by goverment policies than land or natural resources, which cannot be boosted in a certain country if its territory lacks reserves of such inputs.

• Labor demand and supply can be easily influenced by the manipulation of a minimum wage level. If such minimum wage is established over the market equilibrium, wages paid would increase and employers would decrease the amount of labor demand. If the minimum wage is eliminated, demand would be enhanced.
• Capital demand and supply can be influenced, for example, by the imposition of taxes. If the transactions for the purchase of physical capital require the payment of high taxes, producers would demand less and delay as much as possible the replacement of the equipment. On the other hand, if taxes are eliminated or subsidies are established they would take the opportunity to replace the machines.