Factors of Production Notes PDF

YOUR NOTES 1.2.1 The Factors & Their Rewards  The Factors of Production Factors of production are the resources used to produce goods & services Land, labour, capital & enterprise The production of any good/service requires the use of a combination of all four factors of production Goods are phy...

YOUR NOTES 1.2.1 The Factors & Their Rewards  The Factors of Production Factors of production are the resources used to produce goods & services Land, labour, capital & enterprise The production of any good/service requires the use of a combination of all four factors of production Goods are physical objects that can be touched (tangible) e.g. mobile phone Services are actions or activities that one person performs for another (intangible) e.g manicure, car wash The Four Factors of Production Land Labour Capital Non man-made The human input into Capital is any mannatural resources are the production made resource that is available for process. Labour used to produce production. Some involves mental or goods/services e.g. countries have a vast physical effort. Not all tools, buildings, amount of a particular labour is of the same machines & computers natural resource & so quality. It can be skilled are able to specialise in or unskilled. Some its production e.g. oil, workers are more wood, fish, corn, iron productive than others ore because of the education, training & experience they have Enterprise Enterprise involves taking risks in setting up or running a firm. An entrepreneur decides on the combination of the factors of production necessary to produce goods/services with the aim of generating profit Some of the Factors of Production Required to Produce a Motor Car Land Labour Capital Page 2 of 6 Enterprise iron ore rubber oil sand cows car designer production director production line staff supply chain staff robotic arms conveyor belt rolled steel computers seats dashboards mirrors leather CEO Rewards for the Factors of Production In a market economic system, the factors of production are privately owned by households or firms (The terms 'market' & 'free market' are used interchangeably) They make these resources available to firms who use them to produce goods/services Firms purchase land, labour, & capital from households in factor markets Households receive the following financial rewards for selling their factors of production. This reward is called factor income The factor income for land → rent The factor income for labour → wages The factor income for capital → interest The factor income for entrepreneurship → profit  Exam Tip Page 3 of 6 YOUR NOTES 