Factors of Production

Written by Anuar Burkitbayev and Alexey Dudarev

The factors of production are the resources that are used in order to produce goods and services. These resources are split into 4 groups:

• Land- natural resources.

• Labour - the human effort that produces goods and services

• Capital - human-made resources that make other goods and services

• Enterprise - people who run the firm, take risks, and make decisions

Land is a factor of production into which all-natural resources are grouped. This means that it isn’t only the actual land, but also things like coal, fish, crops, trees- any product of nature. The land resource can be divided into 2 categories: resources that are renewable and resources that are non-renewable. Renewable resources are ones that can be replenished and therefore don’t run out, for example, things like solar energy and wind energy

Labour is the people who work and produce goods and services, it is the economy's workforce. This workforce consists of workers with many different characteristics and skills. The value of a worker is called the workers' human capital and it is determined by their skill level and productivity, both of which depend on the education and training a worker has received.

Capital consists of all the resources used in production that are man-made. These are things like machinery, tools, offices, and factories- anything used in production that has been made by humans. There are two types of capital in an economy. The first is the circulating capital, which is the capital that is still moving through the production process. In other words, the capital that isn’t yet being used to produce other goods and services. Semi-manufactured capital, raw materials, and finished capital waiting to be sold are all examples of capital that is still circulating. Fixed capital is the capital that is being used in the production of goods and services, it is the capital that is at its final destination in the production chain and is no longer moving through it (and is therefore fixed).

Enterprise is the factor of production that coordinated the other 3 factors of production. It consists of taking risks and organizing production using other factors. Entrepreneurs are the people who fill in this role, like business owners and (sometimes) managers.

Each of these factors of production gets paid differently:

• Land is paid in rent

• Labour is paid wages

• Capital is paid in interest 

• Enterprise earn profit