Services or goods enjoyed are a result of a process known as production. Any business must effectively use resources to produce goods and services to cater to the market demand. Over the years, economists have defined three factors of production, which are land, labor and capital. In recent years, a fourth factor, entrepreneurship, has conspicuously emerged.
Land
Land, as a factor of production, refers to the physical ground and natural resources such as minerals used in the production of goods. It also refers to anything that is not man made and can be used to produce goods. Natural resources such as minerals and fossil fuels are the backbone to many giant mining companies. Soil is also a natural factor that supports economical activities such as farming. Land is a scarce resource, and requires good management.
Labor
Labor refers to the work and production activities provided by humans for monetary compensation. This consists of various abilities and skills that human beings apply to enhance production of goods and services, and ensures that business is up and running. Companies invest in labor by training employees to operate different machines for production of goods such as operating a machine to package products. The ability to apply mental talents to innovatively perform errands and discover new products is also counted as labor. Entrepreneurship is however not considered as labor.
Capital
Capital refers to the use of wealth to create more wealth by enhancing production of goods. Apart from money, capital also refers to tools, machinery and infrastructure made to produce other goods. For example, for production of crops or livestock, a farmer will need to include farming equipment and other machinery as capital. Factories, machinery and office structures used for production of goods are referred to as fixed capital, while social capital refers to government's investment in learning institutions, and infrastructure to facilitate in production. Finished and unfinished products produced for consumption or being turned into consumer goods in the future are referred to as working capital.
Entrepreneurship
Entrepreneurship refers to individuals with an economic motivation who attempt to make money from an idea. Entrepreneurs are innovative and ready to take risks to push their ideas to set up businesses. Economists have had debates over entrepreneurship as a factor of production. Some categorize it under labor while other economists view it as an independent factor. It takes an entrepreneur to develop business concepts and take risks to ensure that the idea conceives successful business.
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