Factors of Production


In economics we classify goods as “tangible” products and services are known as “intangible” products.


Factors of Production refer to the resources we have available to produce goods and services.


Factor Description Reward
Land All natural resources (gifts of nature) including fields, mineral wealth, and fishing stock. The reward for landlords for allowing firms to use their property is rent
Labour  The physical and mental work of people whether by hand, by brain, skilled or unskilled The reward for workers giving uptime to create products is wages or salaries
Capital  Man made goods which are used to produce consumer goods. Examples include factories (plant), machines and roads. The reward for creditors lending money to firms to invest in buildings and capital equipment is interest
Enterprise  An entrepreneur risks financial capital and organizes land, labour and capital to produce output in the hope of profit The reward for individuals risking funds and offering products for sale is profit. Unsuccessful firms make losses.



There are only a finite (or limited) number of workers, machines, acres of land and reserves of oil and other natural resources on the earth. Because most of these resources (or factors of production) are finite, we cannot produce an unlimited amount of different goods and services. Finite resources cannot be renewed, they are exhaustible and irreplaceable. For example, plastic, crude oil and natural gas, no mechanism exists replenish them.



Renewable resources are commodities such as solar energy, oxygen, fish stocks or forestry that are inexhaustible or replaceable by new growth provided that the rate of extraction of the resource is less than the natural rate at which the resource renews itself.



By producing more goods and services for an ever increasing consumer demand, we are in real danger of destroying the natural resources of the planet. This has important consequence on the long-term sustainability of economies throughout the world and potentially huge implications on living standards and the quality of life.

Environment pressure groups such as Friends of the Earth and Greenpeace seek to highlight the permanent damage to the stock of natural resources available throughout the world and the dangers from economic development and global warming. At the heart of improving resource sustainability is the idea of de-coupling – a process of trying to increase the efficiency with which resources are used in producing goods and services and breaking the link between ever-increasing output and resource depletion.


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