Factor Intensity

What is factor intensity?

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Factor intensity can be defined with regards to factor proportions theory of production and trade, where the factor intensity can be narrowed down to individual products within an industry or in different industries. Comparisons can then be made between the different products and the ratio of factors they utilize in their production. The importance of a factor in different industries is determined by calculating the factor intensity.

In its simplest form, a product may utilize two factors in its production, Labor (L) and Capital (K). Thus by obtaining the ratio of capital to labor, one may determine the intensity of the factors. For instance,

K1/L1 < K2/L2

Where K1 and K2 represent the amount of capital used in the production of item 1 and item 2 respectively.

Where L1 and L2 represent the amount of labor used in the production of item 1 and item 2 respectively.

In this case, we would conclude that item 2 is capital-intensive which makes item 1, automatically, labor-intensive.

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"Factor intensity" is a measure used in economics, specifically in macro-economics (whole nation economics rather than micro- consumer finance economics), by which factors of production (e.g., labor, capital, land, natural resources, energy, ecological impact) are compared across various industries (e.g., compared across agriculture and auto-making) to highlight the intensity with which an industry utilizes a given factor.

This type of factor utilization comparison sheds light on how much industry overlap there is on one factor or one set of factors. Since there is a potential for a nation's industries to have overlapping intensity of demand for a factor or set of factors, there is a potential for resource depletion pertaining to that factor. For instance, during World War II, there were competing needs and demands for steel in both the auto-making industry and the military airplane industry: Auto making and airplane making industries both had a high factor intensity for steel resulting on a rapid draw-down of resources and leading to government intervention to redirect steel toward military airplane making.

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I assume that you are asking about the use of this term in economics, so I have moved your question to that group and I will answer in those terms.

In economics, the term "factor intensity" refers to the relative proportion of the various factors of production used to make a given product.  In other words, factor intensity looks at how much an industry uses capital, for instance, as opposed to labor. You can compare the factor intensity of various kinds of industries with one another.

As an example, we would say that agriculture is land-intensive relative to manufacturing.  Another way to say this is that it has a higher factor intensity for land than it does for things like labor and capital.   That means that each unit of agricultural product requires more land than each unit of manufacturing product.  By contrast, a highly mechanized industry in a developed country will have a higher factor intensity for capital than a less mechanized industry in a less developed country.

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