Factors of production
•Are resources used to produce coolant services
•Four factors of production and natural resources labor capital and
entrepreneurship
1️⃣ Natural Resources / Land
Ὄ Definition
Natural resources are the resources that occur in a natural state and are used in the
production process.
Ὄ Characteristics
Gift of nature
– Natural resources are provided by nature, no human can make them.
–They are sometimes called land because they are found on land.
Supply is limited
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–The quantity of natural resources is fixed according to what nature provides.
–It is impossible to increase the majority of natural resources.
Uneven distribution
– Natural resources are unevenly distributed across the earth.
–Some countries have more natural resources than others.
Natural resources need to be processed
– Some natural resources cannot be used in their natural state.
– They need capital and labour to be processed.
They are either renewable or non-renewable
– Renewable resources can be replaced when exhausted (example: trees can be
grown to replace forest lost due to deforestation).
–Non-renewable resources cannot be replaced (example: oil).
Ὄ Economic Importance
Production of finished goods
– Used as raw materials which are processed into a final product.
Job creation
– Many job opportunities are created when natural resources are collected or
extracted and when processed into finished goods.
Export opportunities
– The country earns foreign exchange when resources are exported.
They form a foundation of production
– Primary sector deals with the extraction of natural resources and it is regarded as
the backbone of production.
Enhance human life
– Natural resources enhance human life by providing beautiful scenarios (example:
forest).
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Ὄ Remuneration
Rent
2️⃣ Labour
Ὄ Definition
Is a human physical or mental effort needed in the production process
Ὄ Characteristics
Labour differs from categories
– There are different categories as per their ability to do the job.
–Skilled labour have higher knowledge and have the ability to do the job.
– Semiskilled labour have training and education.
– Unskilled labour have no education and training.
Labour is a part of a worker
Labour cannot be separated from the worker as it is part of a worker
Labour cannot be stored
Labour cannot be stored for future use, is not used now it will be lost forever.
Labour is fairly immobile
– Geographical and occupational mobility of labour is very low.
Labour cannot be increased in a short period
– Number of workers available depends on the labour force of the country.
Demand for labour is a derived demand
– Labour can only be demanded when the demand for goods and services exists.
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Ὄ Economic Importance
Labour is the most important factor of production
–Production cannot take place without labour.
Payment for labour is the main source of income of households
–The change in labour wages influences the household's standard of living.
Ὄ Remuneration
The remuneration of labour is salaries and wages. Wages are a weekly payment;
salaries are a monthly payment.
3️⃣ Capital
Ὄ Definition
Goods that are man-made and used to produce other goods and services (example:
machinery).
Ὄ Characteristics
Capital goods are manufactured
– Capital goods are man-made resources that are used to produce other
goods.
Capital has a limited lifespan
– Some capital such as machines lose value over time due to wear and tear.
Capital has an owner
– Capital belongs to an owner who can be firms, an individual producer, or a
government.
Capital formation needs sacrifice
– The money needed to buy or produce capital goods often comes from
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savings.
Ὄ Economic Importance
Capital increases efficiency in production
– The use of capital goods helps to improve production of labour.
Capital creates economic growth
– Enables producers of goods to produce more goods and services.
Capital goods make standardisation possible
– Able to produce goods that are exactly of the same quality.
Ὄ Remuneration
Interest
4️⃣ Entrepreneurship
Ὄ Definition
Is a person who has ambition and ability to open and successfully run a business
enterprise.
Ὄ Characteristics
Entrepreneurship have good decision-making skill
– They make decisions about what to produce, how much to produce, and for
whom to produce.
–They have to analyse their markets to ensure that the product produced is what the
consumers want.
Entrepreneurship is an organizer
– They organize and coordinate the three other factors of production to ensure
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efficient production takes place.
Driving force behind production
– They take the initiative and exploit new ideas which can improve the product or
create new ones.
They are risk takers
– They can cope with the uncertainty and stress that comes with taking risk
Ὄ Economic Importance
Ensure production takes place
– By combining all the other factors of production they ensure that goods that are
used to satisfy human wants and needs are produced.
Create employment
– Big and small businesses create jobs for labour, which is an important factor of
production.
They ensure productivity is achieved
– Efficiently in production can lead to economic growth.
They contribute to capital formation
– Entrepreneurs make profit, parts of which are often saved and reinvested.
Ὄ Remuneration
Profit