Some of these items, such as workers’ skills, might be intangible. It might need thousands more resources of varying size and cost. It might require a thousand workers to run the factory, take orders, market (or sell) the paper, and deliver it to wholesalers or retail stores.
#Four factors of production land full
A paper company might need, among many other things, trees, water, a large factory full of heavy machinery, a warehouse, an office building, and delivery trucks. In economics the term factors of production refers to all the resources required to produce goods and services. Here's a fun video explaining this concept more.Factors of Production: Land, Labor, Capital What It Means Economists refer to the demand for factors of production as a "derived demand" because it is directly related to the demand for the final good or service being sold in the goods and services market. The demand for these factors of production is derived from the demand for the final product. If the demand for shirts increases, businesses will meet the demand by purchasing more cotton, hiring more workers, and purchasing an additional loom. However, it is still the end-users who determine the demand for a factor of production when they purchase an item in the goods and services market. This is a reason China has embraced the profit motive and has begun to encourage entrepreneurship.īusinesses purchase the factors of production in the factor market. The law of supply and demand determines the price and quantity produced for each factor of production. The entrepreneur requires a profit incentive to assume the time and risk to begin a business. Countries may be blessed with an abundance of natural resources, labor, and even capital, but they may fail to be conducive to business because the political climate discourages entrepreneurship. This is why most economists consider entrepreneurship a factor of production. The entrepreneur needs to acquire and manage the other factors of production. Land, labor, and capital alone will not produce a good or service. In other words, it enables a country to increase its production capacity. Increasing capital pushes out a country's production possibility frontier. Intellectual capital includes the intellectual property a business develops including technological expertise and trade secrets. Money used to purchase other factors of production is considered financial capital. The machinery and tools used to produce a good or service are capital. Capital can be broken into several categories. Silicon Valley in California attracts many technology companies because of the large number of highly educated people.Ĭapital is another factor of production. Many companies may require a specialized labor force and locate in an area where these highly educated or trained individuals live. Education improves the quality of a country's labor pool. China, India, and Japan are countries that have taken advantage of a large available workforce to establish manufacturing plants. Countries with a large labor pool may specialize in manufacturing. Quantity and quality of labor are important considerations when evaluating the contribution this factor makes to a country's economy.
Labor includes everyone except the entrepreneur (who is put in a separate category). Kuwait has taken advantage of its enormous crude oil deposits. Other countries may have an abundance of a valuable resource and exploit it. Many countries, like Japan, are constrained by a limited supply of resources and depend on importation. Economists lump all natural resources into the "land" category, such as water, diamonds, timber, gold, farmland, and crude oil.
Those countries with limited factors of production will normally specialize in industries to take advantage of the factors they possess. Countries with an abundance of all the factors of production should thrive.
The factors of production include labor, capital, land, and entrepreneurship. Detailed Explanation:Īn adequate supply of the factors of production is essential to building a sustainable business.
#Four factors of production land free
View FREE Lessons! Definition of Factors of Production:įactors of production are the resources used in the ongoing production of goods or services.
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