economic-resources

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The Factors of Production

Factors of production are the resources used to produce goods and services
- Land, labour, capital and enterprise
The production of any good/service requires the use of a combination of all four factors of production
- Goods are physical objects that can be touched (tangible) e.g. mobile phone
- Services are actions or activities that one person performs for another (intangible) e.g manicure, car wash

The Four Factors of Production

Land	Labour	Capital	Enterprise
Non man-made natural resources available for production Some countries have a vast amount of a particular natural resource and so are able to specialise in its production e.g. oil	The human input into the production process Labour involves mental or physical effort. Not all labour is of the same quality. It can be skilled or unskilled	Capital is any man-made resource that is used to produce goods/services E.g. Tools, buildings, machines and computers	Enterprise involves taking risks in setting up or running a firm An entrepreneur decides on the combination of the factors of production necessary to produce goods/services with the aim of generating profit

Some of the Factors of Production Required to Produce a Motor Car

Land	Labour	Capital	Enterprise
iron ore rubber oil sand cows	car designer production director production line staff supply chain staff	robotic arms conveyor belt rolled steel computers seats	CEO

In a free market economic system, the factors of production are privately owned by households or firms
- Households make these resources available to firms that use them to produce goods/services
- Firms purchase land, labour, and capital from households in factor markets
Households receive the following financial rewards (factor income) for selling their factors of production
- The factor income for land → rent
- The factor income for labour → wages
- The factor income for capital → interest
- The factor income for entrepreneurship → profit

Environmental resources are raw materials that come from nature, e.g. gas, water, soil, wood
- It is the land used to produce goods and services as part of the factors of production

Increased economic activity causes the degradation of environmental resources.This is where current generations overconsume and produce, resulting in resources becoming scarce. They are being destroyed for use for future generations
- Non-renewable resources (eg. coal or oil) are already limited in supply and will run out quickly
- Renewable resources (e.g. water and air) should be infinite in supply
  - Resources such as clean water will eventually run out if not treated properly by current generations. This makes the supply scarce

This gives rise to the concept of sustainability, which means meeting the needs of current generation without compromising the needs of future generations