Factors of Production and Opportunity Cost

A set of vocabulary flashcards reviewing factors of production, factor rewards, resource types, and opportunity cost.

Production

The process where inputs (raw materials) are turned into outputs (goods and services).

Tangible Outputs

Physical things produced during the production process, such as paper and books.

Intangible Outputs

Non-physical outputs produced during the production process, including transport, utilities, healthcare, and financial services (investment banking, insurance, banking).

Factors of Production

The scarce resources (inputs) used to make things people want and need (outputs), consisting of land, labour, capital, and enterprise.

Factor Rewards

The earnings or payments received by the four factors of production: rent for land, wages for labour, interest for capital, and profit for enterprise.

Land

All natural resources in and on the Earth, including renewable resources (e.g., sun to electricity), non-renewable resources (e.g., coal), materials (e.g., slate/diamonds), water, and animals.

Free Good

A resource that is not scarce (such as air) and is therefore not part of economic trade.

Labour

The work done by those people who contribute to the production process.

Capital

Man-made resources used to produce other goods and services, such as equipment, factories, and schools.

Enterprise

The willingness and ability to organise the other factors of production, make decisions, and take risks (financial risks, risk of reputation, emotional risks, and time), incentivised by profit.

Opportunity Cost

The benefits arising from the 'next best opportunity foregone', which arises due to the basic economic problem of scarcity.