An economic concept that refers to the inputs needed to produce goods and services Show
What are Factors of Production?Factors of production is an economic concept that refers to the inputs needed to produce goods and services. The factors are land, labor, capital, and entrepreneurship. The four factors consist of resources required to create a good or service, which is measured by a country’s gross domestic product (GDP). In factors of production, the word “production” refers to a process of transforming inputs into outputs, which are finished products that can be sold as a good or service. In order to do so, the input will go through a production process and various stages to reach the hands of consumers. Land as a Factor of ProductionLand is a broad term that includes all the natural resources that can be found on land, such as oil, gold, wood, water, and vegetation. Natural resources can be divided into renewable and non-renewable resources.
All resources, whether it is renewable or non-renewable, can be used as inputs in production in order to produce a good or service. The income that comes from using land and its natural resources is referred to as rent. Besides using its natural resources, land can also be utilized for various purposes, such as agriculture, residential housing, or commercial buildings. However, land differs from the other factors of production because some natural resources are limited in quantity, so its supply cannot be increased with demand. Labor as a Factor of ProductionLabor as a factor of production refers to the effort that individuals exert when they produce a good or service. For example, an artist producing a painting or an author writing a book. Labor itself includes all types of labor performed for an economic reward, such as mental and physical exertion. The value of labor also depends on human capital, which is determined by the individual’s skills, training, education, and productivity. Productivity is measured by the amount of output someone can produce in each hour of work. The income that comes from labor is referred to as wages. Note that work performed by an individual purely for his/her personal interest is not considered to be labor in an economic context. The following are several characteristics of labor in terms of being a factor of production:
Capital as a Factor of ProductionCapital, or capital goods, as a factor of production, refers to the money that is used to purchase items that are used to produce goods and services. For example, a company that purchases a factory to produce goods or a truck that is purchased to do construction are considered to be capital goods. Other examples of capital goods include computers, machines, properties, equipment, and commercial buildings. They are all considered to be capital goods because they are used in a production process and contribute to the productivity of work. The income that comes from capital is referred to as interest. Below are several defining characteristics of capital as a factor of production:
Entrepreneurship as a Factor of ProductionEntrepreneurship as a factor of production is a combination of the other three factors. Entrepreneurs use land, labor, and capital in order to produce a good or service for consumers. Entrepreneurship is involved with establishing innovative ideas and putting that into action by planning and organizing production. Entrepreneurs are important because they are the ones taking the risk of the business and identifying potential opportunities. The income that entrepreneurs earn is called profit. More ResourcesIf you would like to gain valuable skills that can help develop your journey in corporate finance, CFI is the official provider of the Financial Modeling & Valuation Analyst (FMVA)® certification program. CFI also offers a variety of courses and related readings for you to continue learning, including:
What are the 4 factors of production?Full Transcript. The factors of production are resources that are the building blocks of the economy; they are what people use to produce goods and services. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship.
What are the 4 factors of production and explain each one?What Are the Four Factors of Production? The factors of production are the inputs used to produce a good or service in order to produce income. Economists define four factors of production: land, labor, capital and entrepreneurship. These can be considered the building blocks of an economy.
Which of the following is not a factor of production?Money is not considered as a factor of production. Money is medium of exchange and hence it cannot help to increase the productivity of an economy like other factors of production, thus the factors of production are Land, Labour, Capital and Entrepreneurship.
What are the 5 primary factors of production?The factors are land, labor, capital, and entrepreneurship.. Capital is different from the first two factors because it is created by humans. ... . Additionally, capital is also a factor that can last a long time, but it depreciates in value over time.. |