Econolevel

Friday, October 17, 2014

Factors of Production




Factors of production are the resources used to produce goods and services. It is classified into four
 

     1)      Land: It refers to all natural resources on Earth. These are the resources provided by the nature. Example: Natural fertility of soil, Minerals in the earth surface, forests, rivers, riches in the sea etc. 

We can find renewable resources and non-renewable resources from land. Renewable:  This can be grown in some times again. Example: Trees etc., and non-renewable: which once used is finished example: Gold, Oil etc.

The Price paid for Land is called as Rent.

     2)      Labour (Human resources): Labour refers to all types of human efforts, manual or non-manual, skilled or unskilled which is done for a reward other than pleasure derived from it. 

The reward for labour is wages or salaries.

     3)      Capital:  These are man made goods which helps to produce many other goods and services. It can also be referred to money invested by owner for the use of factors of production. Capital is used by firms as it increases the output. Example factory building, machines, etc. 

Capital can be classified into two
o   Fixed Capital: It refers to things which are long lasting and do not change their form in the production process. Example factory building, machines, etc.
o   Working Capital: This includes things which change their form in the production process. Example: raw material, seeds, fertilizers, stock of leather, timber, money for running expenses etc.

The reward for capital is interest.

    4)      Entrepreneur: Entrepreneur is a person or a group of people who use to take risk and responsibility of employing land, labour and capital and direct them in the process of production.


       The reward for Entrepreneur is Profit and loss.
 

No comments:

Post a Comment