Economics: Part 2 - The 4 Factors of Production

When producers decide to use resources from the economy, they usually end up producing the goods and services that we consume at the household level
Factors of production are the resources people use to produce goods and services; they are the building blocks of the economy. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship
The factors of production, or production inputs, are those resources or things that we use to produce goods. Anything produced in the economy must come from a combination of those resources

Land consists of the physical space on which production takes place, as well as the natural resources found under it or on it
Paid for using the rent
Land is the resource that encompasses the natural resources used in production
Land is considered to be the “original and inexhaustible gift of nature”
In modern economics, it is broadly defined to include all that nature provides, including minerals, forest products, water, and land resources

The physical and mental effort by a person is another crucial component of the production process. We call this labor
It is the period human beings spend or the number of persons needed to produce goods and services
Paid for using a salary or wage
There are two types of labor: physical and mental. Physical labor or “blue-collar jobs” that utilize one’s strength and usually earn less. On the other hand, mental labor or “white-collar jobs” utilizes intelligence and earns more. This is because the salary is dependent on how long one studied in school

Physical or financial resources that are used to produce value in an economy
Capital resources form the durable goods of an economy, produced to produce other goods
Man-made means of production
Paid for using interest
Capital products: tools and materials used to get jobs done

Someone who initiated the entire production process
Risk taker, organiser, and binder of other factors
This special person has determined the right amounts of land, labor, and capital to efficiently produce the goods and services that they wish to provide in the economy
In essence, they are primarily responsible for the delivery of goods and services in the economy
Earns profit
Without the management skills and talents of the entrepreneur, we will never get those products and services that we enjoy in the market
The entrepreneur makes the most important business decisions to keep the firm in good shape, such as pricing and marketing
Entrepreneurs may also decide to invest in research and development in their firms to introduce new products and services, improve their current product line, or production processes
Considered the innovators in the economy