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Economics - Factors of Production

The document defines the four main factors of production as land, labor, capital, and entrepreneurship. Land refers to all natural resources and includes gifts of nature. Labor is any human physical or mental effort applied during production. Capital consists of man-made resources like factories, machinery, and raw materials. The entrepreneur brings together the other factors of production, takes on risk, and makes decisions about what, where, and how to produce.

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David-Lee Skinner-Ballantyne
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1K views5 pages

Economics - Factors of Production

The document defines the four main factors of production as land, labor, capital, and entrepreneurship. Land refers to all natural resources and includes gifts of nature. Labor is any human physical or mental effort applied during production. Capital consists of man-made resources like factories, machinery, and raw materials. The entrepreneur brings together the other factors of production, takes on risk, and makes decisions about what, where, and how to produce.

Uploaded by

David-Lee Skinner-Ballantyne
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Economics – Factors of Production

Production
It is a process of combining various inputs to make something for
consumptions. Production is an outcome of economic activity. For
making or producing something, we need some tangible and intangible
materials.

These materials are the various factors of production. Consider a simple


example of paper crafting. To make an origami, we need paper, money
to buy it, and the most important technique of folding.

Let us understand what we mean by the factors of production and their


types.

Factors of Production

Anything that helps in production is the factor of production. These are


the various factors by mean any resource is transformed into a more
useful commodity or service.

They are the inputs for the process of production. They are the starting
point of the production process. Factors of production are the
parameters which affect the output of production.

Types of Factors of Production


Factors of production have been categorized into four types.
 

Land

It refers to all natural resources. All natural resources either on the


surface of the earth or below the surface of the earth or above the
surface of the earth is Land.

One uses the land to produces goods. It is the primary and natural factor
of production. All gifts of nature such as rivers, oceans, land, climate,
mountains, mines, forests etc. are land.

The payment for land is rent.

Characteristics of Land as a Factor of Production

 The land is a free gift of nature.


 The land has no cost of production.
 It is immobile.
 The land is fixed and limited in supply.
Types of Land

1. Residential
2. Commercial
3. Recreation
4. Cultivation
5. Extraction
6. Uninhabitable
Labor

All human effort that assists in production is labour. This effort can be
mental or physical. It is a human factor of production. It is the worker
who applies their efforts, abilities, and skills to produce.

The payment for labour is the wage.

Characteristic

 It is a human factor.
 One cannot store labour.
 No two types of labour are the same.
Types of Labor

1. Unskilled
2. Semi-skilled
3. Skilled
4. Professional
Capital

Capital refers to all manmade resources used in the production process.


It is a produced factor of production. It includes factories, machinery,
tools, equipment, raw materials, wealth etc.

The payment for capital is interest.

Characteristics

 Capital is a manmade factor of production.


 It is mobile.
 It is a passive factor of production.
Types of Capital

1. Fixed
2. Working
3. Venture
Entrepreneur

An entrepreneur is a person who brings other factors of production in


one place. He uses them for the production process. He is the person
who decides

 What to produce
 Where to produce
 How to produce
A person who takes these decisions along with the associated risk is an
entrepreneur.

The payment for land is profit.

Characteristics

 He has imagination.
 He has great administrative power.
 An entrepreneur must be a man of action.
 An entrepreneur must have the ability to organize.
 He should be a knowledgeable person.
 He must have a professional approach.

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