AS Economics Notes
1.3 FACTORS OF PROUCTION
Resources used to produce goods and services are known as factors of production.
Economists categorize factors of production into four main groups:
Land
Land encompasses natural resources such as agricultural and non-agricultural land, minerals, oil reserves, underground water, forests, rivers, and lakes.
Reward for land is the rent it receives.
Supply of land is fixed.
Quality of land depends on several factors such as soil type, fertility, weather etc.
Labour
Labour refers to the physical and human capital (knowledge, skills, expertise, and intellectual abilities) contributed by individuals in the production of goods and services.
Examples include teachers, construction workers, economists, doctors, taxi drivers, and plumbers.
The reward for labour is wages / salaries.
Capital
Capital, or physical capital, is man-made and produced to aid in the production process. It includes machinery, tools, factories, buildings, road systems, airports, harbours, electricity generators, and telephone supply lines.
It is also known as a capital good or investment good.
The reward for capital is rent.
Types of capital :
Physical capital - Man-made inputs that enhance future production capabilities, leading to increased output of goods and services.
Human capital - Skills, knowledge, health, and abilities acquired by individuals, contributing to increased productivity and future output.
Natural capital - Expanded concept of "land" including natural resources like air, biodiversity, soil quality, and climate, providing future benefits to humankind.
Financial capital - Investments in financial instruments (stocks, bonds) or funds used to acquire them, generating future income for owners.
Entrepreneurship
Entrepreneurship is a special skill possessed by some people.
It involves innovating, taking risks, and seeking business opportunities.
Entrepreneurs organize the other factors of production and take on the risks of business success or failure.
The reward for entrepreneur is profit.