There are many different resources in the world; economists group them into four factors of production:
This includes all of the machinery, buildings, machines etc. used in the production of goods and services. Capital also includes the money that firm have and use.
This is carried out by entrepreneurs who:
- Think of original ideas or improve upon what is already in the marketplace.
- Get the business up and running by organising the other three factors of production.
- Take risks with their own money and the financial capital of other investors.
- Richard Branson, Alan Sugar and James Dyson are famous entrepreneurs.
Confusingly, land isn’t just the ground that is built on, but includes all of the natural resources as well. Land is divided into two different types:
- Non-renewable resources, for example, oil and coal.
- Renewable resources, for example, wood and fish.
This includes the workforce in the economy. Every worker possesses different skills and qualities – we measure this in human capital. It is possible to increase an individual’s human capital through education and training.
There is an easy way of remembering the different factors of production – CELL:
The owners of factors of production can sell or loan them and receive payments – these are called factor incomes:
- The payment for capital is interest
- The payment for enterprise is profit
- The payment for land is rent
- The payment for labour is wages
The factors of production can be bought and sold in factor markets. These will be discussed in far greater detail later in the year.