Definition
In economics, factors of production, resources, or inputs are which is used in the production process to produce output—that is, finished goods and services. The utilized amounts of the various inputs determine the quantity of output according to the relationship is called the production function. There are three basic resources or factors of production: land, labour and capital. The factors are also frequently labelled “producer goods or services” to distinguish them from the goods or services purchased by consumers, which are frequently labeled “consumer goods”. All three of these are required in combination at a time to produce a commodity.
What are ‘Factors Of Production’
Factors of production is an economic term that describes the inputs that are used in the production of goods or services in order to make an economic profit. The factors of production include land, labor, capital and entrepreneurship. These production factors are also known as management, machines, materials and labor, and knowledge has recently been talked about as a potential new factor of production.
Explaining ‘Factors Of Production’
Factors of production include any resource needed for the creation of a good or service. At the core, land, labor, capital and entrepreneurship encompass all of the inputs needed to produce a good or service. Land represents all natural resources, such as timber and gold, used in the production of a good. Labor includes all of the work that laborers and workers perform at all levels of an organization, except for the entrepreneur. The entrepreneur is the individual who takes an idea and attempts to make an economic profit from it by combining all other factors of production. The entrepreneur also takes on all of the risks and rewards of the business. Capital is made up of all of the tools and machinery used to produce a good or service.
An Encompassing Example of the Four Factors of Production
Often times, a good or service uses each one of the four factors of production in the generation of its output. If, for example, a young technology developer senses the need to create a new social media tool, in this case, Facebook. He becomes an entrepreneur when he assumes the risk of the idea’s success or failure. Mark Zuckerberg allocates his hour toward this new venture, and by coding the minimum viable product himself, he is the only factor of production.
Further Reading
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- The effect of lean production on financial performance: The mediating role of inventory leanness – www.sciencedirect.com [PDF]
- Human capital and financial development in economic growth: new evidence using the translog production function – onlinelibrary.wiley.com [PDF]
- Structural change in agricultural production: economics, technology and policy – www.sciencedirect.com [PDF]
- International portfolio choice and corporation finance: A synthesis – onlinelibrary.wiley.com [PDF]
- Trends in park tourism: Economics, finance and management – www.tandfonline.com [PDF]
- CES production functions and economic growth – onlinelibrary.wiley.com [PDF]
- The economics of intangible investment – ideas.repec.org [PDF]
- Complementarity in a simple general equilibrium production model – www.jstor.org [PDF]
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Q&A about Factors of Production
Who is an entrepreneur?
An entrepreneur is someone who assumes risk for an idea's success or failure.
What does minimum viable product mean?
Minimum viable product means that something can be created with just enough effort to get started and test whether there will be any demand for it.
What are the four factors of production?
The four factors of production include land, labor, capital and entrepreneurship.
