Factors of Production:

Economic resources are scarce relative to the infinite needs and wants of people and businesses operating in the economy. It is important to use these resources efficiently in order to maximize the output that can be produced from them.
Economists make a distinction between three types of resources:





Land is the natural resources available for production. Some nations are “blessed” with natural resources and exploit this by specializing in the extraction and production of these resources. Only one major resource is for the most part free - the air we breathe. The rest are scarce, because there are not enough natural resources in the world to satisfy the demands of consumers and producers. Air is classified as a free good since consumption by one person does not reduce the air available for others - a free good does not have an opportunity cost.



Labor is the human input into the production process.
In the United Kingdom, of about 59 million inhabitants only approximately 35 million
are of working age (16-64 years for men and 16-59 for women), and of those about 28 million have paid jobs.

Two important points need to be remembered about labor as a resource:
A housewife, a keen gardener
and a DIY enthusiast all produce goods and services, but they do not get paid for them. They are producing non-marketed output and the output of these people is not included in Gross Domestic Product.
Not all labor is of the same quality. Some workers are more productive than others because of the education, training and experience they have received.



To an economist, capital has several meanings - including the finance raised to operate a business. But normally the term capital means investment in goods that can produce other goods in the future. Capital refers to the machines, roads, factories, schools and office blocks which human beings have produced in order to produce other goods and services.
A modern industrialized economy possesses a large amount of capital, and it is continually increasing. Increases to the capital stock of a nation are called investment. Investment is important if the economy is to achieve economic growth in the long run.

Fixed capital:
Fixed capital includes machinery, plant and equipment, new technology, factories andvc.jpg

buildings - all goods designed to increase the productive potential of the economy in
future years.

Working capital:

Working capital includes stock s of finished and semi-finished goods (components) that
will be either consumed in the near or will be made into finished consumer goods. Human
capital refers to the quality of labor resources, which can be improved
through investments in education, training, and health.


Entrepreneurs are people who organize other productive resources to make goods and services. Some economists regard entrepreneurs as a specialist form of labor input. Others believe that they deserve recognition as a separate factor of production in their own right.
The success and/or failure of a business often depends critically on the quality of entrepreneurship.
Entrepreneurship (sometimes seen as a separate factor): management, risk-taker.


...To watch a video about the basics of factors of production, click on this link: Factors of production