The Factors of Production
- Factors of production are the resources used to produce goods and services
- Land, labour, capital and enterprise
- Land, labour, capital and enterprise
- The production of any good/service requires the use of a combination of all four factors of production
- Goods are physical objects that can be touched (tangible) e.g. mobile phone
- Services are actions or activities that one person performs for another (intangible) e.g manicure, car wash
The Four Factors of Production
Land |
Labour | Capital | Enterprise |
|
|
|
|
Some of the Factors of Production Required to Produce a Motor Car
Land |
Labour | Capital | Enterprise |
|
car designer production director production line staff supply chain staff |
|
CEO |
- In a free market economic system, the factors of production are privately owned by households or firms
- Households make these resources available to firms that use them to produce goods/services
- Firms purchase land, labour, and capital from households in factor markets
- Households receive the following financial rewards (factor income) for selling their factors of production
- The factor income for land → rent
- The factor income for labour → wages
- The factor income for capital → interest
- The factor income for entrepreneurship → profit