Economic resources (factors of production)

There are many different resources in the world; economists group them into four factors of production:

·      Capital

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.

·      Enterprise

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.

·      Land

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.

·      Labour

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:

Capital

Enterprise

Land

Labour

 

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.

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