Factors of Production (Video Notes)

Flashcards covering the four factors of production (land, labor, capital, entrepreneurship), their characteristics, interrelationships, and their importance to the economy, based on the lecture notes.

What are the four factors of production?

Land, Labor, Capital, and Entrepreneurship.

What is production?

The process of creating goods and services by combining the four factors of production.

Which factor refers to natural resources used in production?

Land.

Definition of land in economics.

All natural resources available for production (soil, forests, minerals, water, climate, etc.).

Give examples of land resources.

Agricultural soil, forests, fisheries, minerals, water, geothermal energy, oil, natural gas.

What are the characteristics of land?

Fixed supply; free gift of nature; immobility; quality varies; subject to diminishing returns.

Why is land important in an economy?

Source of food and raw materials; determines agricultural/industrial base; supports tourism and ecological balance.

What does labor mean in economics?

All physical and mental effort exerted by humans in the production process (e.g., farmers, teachers, engineers).

What are the characteristics of labor?

Human element; perishable; heterogeneous; enhanceable; dependent on motivation.

Types of labor

Unskilled, Semi-skilled, Skilled, Professional/Intellectual.

Why is labor important?

Transforms natural resources into useful products; human capital development drives long-term growth.

What is capital?

All man-made resources used in further production; not money, but tools, machines, and infrastructure.

What are the characteristics of capital?

Man-made; productive; depreciates; increases efficiency.

What are the types of capital?

Physical Capital, Human Capital, Financial Capital, Social Capital.

Why is capital important?

Essential for industrialization and modernization; improves productivity; attracts investment.

What is entrepreneurship?

Initiative, skill, and risk-taking ability to combine land, labor, and capital to produce goods and services.

Functions of entrepreneurship?

Innovation; risk-bearing; decision-making; resource coordination.

Why is entrepreneurship important?

Driving force of economic growth; creates jobs, competition, and wealth; encourages innovation and technological advancement.

How do the four factors interdepend?

Land provides raw materials; Labor transforms; Capital provides tools; Entrepreneurship organizes and innovates.

What does the circular flow show about the factors of production?

Households provide land, labor, capital, and entrepreneurship; businesses demand and combine them to produce goods/services; incomes ( wages, rent, interest, profit ) flow to households; goods/services flow to households.

Why are the factors of production important to the economy?

Foundation of production; employment creation; income and growth; productivity; sustainability.

Closing thought question from the notes

If one factor were missing, could the economy survive?