Question

What are the factors of production and why are they important. Give an example of each. Please use bullet points to make it easier for me to understand your responses.

Answer 1

A factor of production can be defined as the good or service required for production. A factor of production is essential for output, since no output is possible without it. It is common practice to relate the manufacturing cycle to three variables, property, labor , and capital, to which we add organisation.

Land- In economics, land as a factor of production refers not only to the surface of land but to all the gifts of nature, such as rivers , oceans, climate, mountains, fisheries, mines, forests, etc. Land is, therefore, an important factor of production which helps in the production of goods and services in one way or the other.

Labor- For some monetary reward, labor refers to all mental and physical work undertaken. It includes a factory worker, a physician, a teacher, a lawyer, an engineer, an officer, etc. But labour does not include any work done for leisure or that has no monetary reward at all. A person who paints for pleasure, sings a song to entertain his friends, or attends to his garden should not be considered to have done any economic labour. On the other hand, if a person sells his paintings, a singer sings a song for a movie and a gardener looks after a garden paying for money, their services are considered to be labour. Labor is thus essential to production.

Capital- Capital includes all resources which are man-made. It includes all resources other than land which is used for more wealth creation. It includes machines, equipment , machinery, plants, raw materials and means of transportation such as highways , railways, canals, etc. In modern usage, capital refers not only to physical capital, but also to human resources, which is the cycle of growing knowledge , skills and capacities of all the citizens of the world.

Organisation- Land, labour , and capital are respectively natural , human, and material means of production No production is possible without combining and employing these three factors of production in the right proportions. So there must be someone to hire them from their owners by paying rent wages and interest, and to decide the quantities of each required for production. Organization refers to the services of an entrepreneur who is innovative in controlling, organizing and managing a firm 's policy and taking all risks.