4 Factors Of Production

-
Factors of production are the resources or inputs used by human beings to produce goods or service for the aim of making profit. These factors of production aren't the same as raw materials, this because they are used in production process but they are not transformed to product. However, some produced goods  known as capital goods such as tools and machines like computers and vehicles can be factors of production.

Factors of production

There are four factors of production which are land, labour, capital and entrepreneurship.


1. Land

Land includes anything that comes from land (natural resources) which are used in production of goods and service. Land is very important in production process as it provides raw materials for production but also provides space for setting up production unit. The natural resources from land can be renewable such as water, forest, wind energy, and solar energy or nonrenewable such as gold, oil and natural gas. Moreover, land itself can be utilized for various purposes, such as agriculture, residential housing or commercial buildings.


2. Labour

Labour is a mental or physical effort that human contributes in production of goods or service. Labour can be skilled or unskilled. Skilled labours are experts and usually limited and more expensive to employ than unskilled labour. The value of labor depends on human capital, which is determined by the individual’s skills, training, education, and productivity. Note that, in economic context, work performed by an individual purely for his/her personal interest is not considered to be labor. For example if a person is making cakes for leisure, would not be considered to have done any labour in sense of economics.


3. Capital

Capital are produced goods such as tools, machines and buildings that are used by human to produce goods and service. They are also known as capital goods. Example of capital goods are hummer, vehicle, and computer. In society, most of people think capital is all about money, but in economic context money is not considered as a capital unless it is used to buy real capital goods for instance tools and machines. Capital is classified into three categories which are fixed capital, operating or working capital and liquid capital. Fixed capital are the capital goods that are not completely used in production process such as  buildings and machines. Operating or working capital are raw materials for production that are completely used in production process such as fuel and fertilizers. Liquid capital is money that is meant for buying real capital goods or assets for production process.


4. Entrepreneurship

Entrepreneurship is the process of starting and developing a business, with the aim of delivering something new or improved to the market. Entrepreneurs combines the three factors of economy (land, labour and capital) and use different innovative ideas to produce new products and service to earn profit. They contribute much in economic growth, helping to build some of the largest firms in the world as well as some of the small businesses in your neighborhood.

References