1.2.1 Production

Factors of production

The factors of production are the inputs (resources) needed to produce goods and services. They include: 

  1. Land: All natural resources including land itself, water, minerals, forests (resources found in or on the land)

  2. Labour: Workers. It includes skills, abilities and time contributed by workers. 

  3. Capital: Physical assets or man-made resources used in production. Including machinery, tools, buildings. Capital can be physical capital or financial capital (money)

  4. Enterprise (entrepreneurship): The ability to come up with a business idea, coordinate tasks, take risks, make decisions. An entrepreneur manages the other factors of production to make goods/services

Sectors of the economy

Primary sector – extraction of raw materials – mining, fishing and agriculture.

Secondary / manufacturing sector – concerned with producing finished goods, e.g. Construction sector, manufacturing and utilities, e.g. electricity.

Service / ‘tertiary’ sector –  concerned with offering services to consumers. This includes retail, tourism, banking, entertainment and  I.T. services.

Sectors of the economy in different countries

  • Developed – Largest area is tertiary (more than 50%), 2nd largest is secondary and smallest is primary

  • Developing economies – Largest area is primary (more than 50%), Tertiary and secondary are smallest. Often tertiary is 2nd biggest due to tourism.

  • Emerging (less economically developed countries with high economic growth) – Secondary may be largest. Tertiary is smaller than developed economies. Primary is smaller than developing economies.