- The factors of production are used in the process of producing goods and services.
There are 4 factors of production:
- Capital Goods
These are often called 'producer goods and services'
- As opposed to consumer goods and services, which are the result of production.
- Land may refer to physical space, such as farmland
But it can also be any natural resource, such as:
- Minerals and Ores
- Fishing Areas
- Labor is the human part of the production process
- This means everyone, not just the frontline staff who work with the raw materials.
- Labor can be classified as either physical or mental.
- Capital refers to goods used to produce other goods and services .
There are two types of capital:
- Fixed capital refers to one time purchases, such as tools and machinary .
- Working capital refers to goods that are used during the production process, such as raw materials.
Infrastructure is also classified as a type of capital
- This might include road networks, airports, docks and other methods of logistics and transport.
- However it also includes other things necessary in the production process, such as power, water and communications systems (such as high speed internet).
- Entrepreneurship is a later addition to the factors of production.
- Some economists classify it as a specialized form of labor, rather than seperating it into its own category.
- Entrepreneurs combine the other factors of production together in order to make money.
- Entrepreneurs are the drivers of innovation, and are responsible for economic growth.