Article Shared by Show Some of the important factors of production are: (i) Land (ii) Labour (iii) Capital (iv) Entrepreneur. Whatever is used in producing a commodity is called its inputs. For example, for producing wheat, a farmer uses inputs like soil, tractor, tools, seeds, manure, water and his own services. All the inputs are classified into two groups—primary inputs and secondary inputs. Primary inputs render services only whereas secondary inputs get merged in the commodity for which they are used. In the above example, soil, tractor, tools and farmer’s services are primary inputs because they render services only whereas seeds, manure, water and insecticides are secondary inputs because they get merged in the commodity for which they are used. It is primary inputs which are called factors of production. Primary inputs are also called factor inputs and secondary inputs are known as non-factor inputs. Alternatively, production is undertaken with the help of resources which can be categorised into natural resources (land), human resources (labour and entrepreneur) and manufactured resources (capital). All factors of production are traditionally classified in the following four groups:
(i) Land:It refers to all natural resources which are free gifts of nature. Land, therefore, includes all gifts of nature available to mankind—both on the surface and under the surface, e.g., soil, rivers, waters, forests, mountains, mines, deserts, seas, climate, rains, air, sun, etc. (ii) Labour:Human efforts done mentally or physically with the aim of earning income is known as labour. Thus, labour is a physical or mental effort of human being in the process of production. The compensation given to labourers in return for their productive work is called wages (or compensation of employees). Land is a passive factor whereas labour is an active factor of production. Actually, it is labour which in cooperation with land makes production possible. Land and labour are also known as primary factors of production as their supplies are determined more or less outside the economic system itself. (iii) Capital:All man-made goods which are used for further production of wealth are included in capital. Thus, it is man-made material source of production. Alternatively, all man-made aids to production, which are not consumed/or their own sake, are termed as capital. It is the produced means of production. Examples are—machines, tools, buildings, roads, bridges, raw material, trucks, factories, etc. An increase in the capital of an economy means an increase in the productive capacity of the economy. Logically and chronologically, capital is derived from land and labour and has therefore, been named as Stored-Up labour. (iv) Entrepreneur:An entrepreneur is a person who organises the other factors and undertakes the risks and uncertainties involved in the production. He hires the other three factors, brings them together, organises and coordinates them so as to earn maximum profit. For example, Mr. X who takes the risk of manufacturing television sets will be called an entrepreneur. An entrepreneur acts as a boss and decides how the business shall run. He decides in what proportion factors should be combined. What and where he will produce and by what method. He is loosely identified with the owner, speculator, innovator or inventor and organiser of the business. Thus, entrepreneur ship is a trait or quality owned by the entrepreneur. Some economists are of the opinion that basically there are only two factors of production—land and labour. Land they say is appropriated from gifts of nature by human labour and entrepreneur is only a special variety of labour. Land and labour are, therefore, primary factors whereas capital and entrepreneur are secondary factors. Video transcript- [Instructor] An idea that will keep coming up as you study economics is the idea of the four factors of production, which are usually listed as land, labor, capital, and entrepreneurship. And the idea here is if you want to produce anything, so let's just say this circle is the production process, and this arrow is the output, you need inputs. Now, you might have many, many, many inputs. You might need supplies, you might need a factory, you might need people to work in the factory, you need all of these different things. But the idea of the four factors of production is that these things can all be classified in one of these four groups, as either land, labor, capital, or entrepreneurship. Now, these words have meaning in everyday language. And so, some of it might jump out at you. Of course, if you need to build factory or if you need to farm, you need land to do so. And you can see that in this example here, where we see a farm. Clearly, the need a lotta land in order to have the farm. Even in a garment factory, this is a picture of a garment factory from maybe a hundred years ago, even there, they needed land on which to build the factory. So, this floor is sitting on land. And land doesn't just have to strictly mean land in an economics context. It can mean natural resources in general. This could be things like water or air or energy. So, in some contexts, instead of land, some people might say natural resources for this first factor of production. Now, another important factor of production, and arguably they're all important, is the idea of labor. To produce many or most things, someone has to work on it. So, someone had to plant these seeds, and they will have to harvest these crops. The labor is very clear here. You see people putting in work in order to produce the product right over there. Now, capital is an interesting one. It means one thing in everyday language, and it means something slightly more specific when we talk about it in an economics context. In an economic context, capital is something produced to produce other things. So, examples of capital would be tools that you use to produce other things. It could be a building that you need in order to produce other things. It could be the machinery in a factory. So, in these two pictures, there's many examples of capital. You could view this table and the tools that these folks are using, that is capital. You could use, you could view the whole building itself and all of the light fixtures and all of that as capital. So, all of this stuff is capital. The hangers that they're putting the coats on after they produce it, that is capital. In this farm example, the capital would be the buildings. These were constructed so that they could produce the food from the farm. This little, it looks like some type of machinery there, that is capital for the farm. It's being used to produce the output of the farm. Now, the place that that's different than everyday language, in everyday language, when people talk about capital, they'll often include financial capital, financial assets that could be used to get benefit in the future, things like money. But in an economic context, we are not considering financial assets, we're only thinking about things that were produced in order to produce other things. The fourth factor of production is entrepreneurship. Entrepreneurship, in our everyday language means putting things together so you're trying to create other things. When someone's an entrepreneur, you might imagine someone who's trying to start a business. In an economic context, it has a related idea. Entrepreneurship is putting together all of the other factors of production so that you can actually produce things. You can't just randomly build buildings and randomly plant seeds. Someone has to think about how do you put these things together so that you can produce things in a reasonable way? And obviously, you wanna produce as much as possible given the other factors that you are putting into the production. A related idea, and it sometimes is used interchangeably in an economics course, is technology. So, sometimes, you'll see the four factors of production as land, labor, capital, and entrepreneurship; and sometimes, you'll see it listed as land, labor, capital, and technology. But when you see this, when you see technology as a factor of production, don't think about it as technology in everyday language, where you think of computer chips or software. When people are talking about technology as a factor of production, they are really talking about entrepreneurship. They're talking about the know-how of putting together the other factors of production in order to produce that output. Finally, I wanna leave on one idea, the idea of the two types of things that could be produced from all of these factors of production. Broadly speaking, we could produce something that could be used to produce more things, and we already talk about it. We could be, in that situation, be producing capital goods. So, that could be that we are constructing a factory that itself maybe produces tools for other people to use in some other production process. The other option we have is to produce what are known as consumption goods. Consumption goods. Consumption goods are goods that are just used. It might make people happy, they might find pleasure in it, but it's not being used to produce other things. And because our production resources are scarce, there's a trade-off when a society or a factory or whoever decides how much capital to produce versus how much consumption goods. You need some consumption goods; otherwise, frankly, we wouldn't have clothing on. We wouldn't be eating nice meals. We wouldn't be able to enjoy our lives. But at the same time, you also need capital. If we did only consumption goods, at some point, we wouldn't have all the things we need to produce the consumption goods. So, it's a very interesting trade-off that we'll explore more in future videos. What is land labor and capital called?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 types of economic resources?There are four economic resources: land, labor, capital, and technology. Technology is sometimes referred to as entrepreneurship. Natural resources that are used in the production of goods and services. Some examples of land are lumber, raw materials, fish, soil, minerals, and energy resources.
What are the 4 factors of economic growth?The four main factors of economic growth are land, labor, capital, and entrepreneurship.
What are the 4 factors of production and give examples?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.
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