Factors of Production

#GS-03 Economy

What are the Factors of Production:

Factors of production are resources that are thought to be the basic building blocks of production in any economy.
Land, labour, capital, and entrepreneur are widely considered to be the four main factors of production.

Land includes any natural resource used to produce goods and services; anything that comes from the land.
Some common land or natural resources are water, oil, copper, natural gas, coal, and forests.
Land resources are the raw materials in the production process.
These resources can be renewable, such as forests, or non-renewable such as oil or natural gas.
While land is an essential component of most ventures, its importance can diminish or increase based on industry.
The income that comes from using land and its natural resources is referred to as rent.

Labor is the effort that people contribute to the production of goods and services.
Labor resources include the work done by the waiter who brings your food at a local restaurant as well as the engineer who designed the bus that transports you to school.
If you have ever been paid for a job, you have contributed labor resources to the production of goods or services.
Labor by an uneducated and untrained worker is typically paid at low prices.
Skilled and trained workers are called “human capital” and are paid higher wages because they bring more than their physical capacity to the task.
The income that comes from labour is referred to as

Think of capital as the machinery, tools and buildings humans use to produce goods and services.
Capital differs based on the worker and the type of work being done.
For example, a doctor may use a stethoscope and an examination room to provide medical services.
Your teacher may use textbooks, desks, and a whiteboard to produce education services.
It is important to distinguish personal and private capital in factors of production.
A personal vehicle used to transport family is not considered a capital good, but a commercial vehicle used expressly for official purposes is.
During an economic contraction or when they suffer losses, companies cut back on capital expenditure to ensure profits.
The income that comes from capital is referred to as interest.

An entrepreneur is a person who combines the other factors of production – land, labor, and capital – to earn a profit.
The most successful entrepreneurs are innovators who find new ways to produce goods and services or who develop new goods and services to bring to market.
Without the entrepreneur combining land, labor, and capital in new ways, many of the innovations we see around us would not exist.
Entrepreneurs thrive in economies where they have the freedom to start businesses and buy resources freely.
The income that entrepreneurs earn is called profit.