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Five Factors of Production

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What are the factors of production?

The factors of production are used in the production process. When the lands combine with capital, labor and other factors then they bring out goods and services. Natural resources are included in land and human resources are included in labor. There are many goods and services that can meet one’s primary and secondary needs. A very small part of these is readily available in nature or in the surrounding. Almost all of the goods and the services that are able to meet the human needs are derived from the application of factors such as labor, capital etc. to natural resources. Natural resources are “natural and raw” material. For example a tree is a natural resource and generally it does not meet the human needs by its own. Human labor can translate the tree into a table, door, cabinet etc. Production can be defined as “any effort or activity” made in order to obtain goods and services that meet human needs.

Factors of Production
Factors of Production

The Main Factors in the Production Process

According to the economy, there are 5 factors of production:

  1. Land: The land factor includes all the natural resources which are under and above the earth. For example: Soil, water, minerals, oil and forest are important natural production factors.
  2. Labor: People make physical and intellectual efforts for a work/job and this effort is called “labor”. The labor is the most important factor in the production process. Without the human factor, it is impossible to think that the other production factors will be in production by themselves. It is the person who brings the other production factors together and places them in the production process. The human labor directs all the process.
Factors of Production
Factors of Production
  1. Capital: The capital is the production tool that is produced by people and is not free in nature. For example; every machine which is used in production, buildings, hardware, tools etc… According to the economy, the capital includes the physical production tools. We would better to say that the capital has different meanings to different science. We explained it in economy.
  2. Entrepreneur: A person or a group of people must decide what will be produce, to whom the produced products will be sold, what expenses and incomes will be etc…People must effectively mobilize the resources.
  3. Technology: Technology is a method of developing a new commodity and also a method of developing known commodities. Technology includes all the methods that applied to produce goods and services.
Factors of Production
Factors of Production

Who owns the production factors?

The answer to this question shows that who manages the world in real. For a market-based economy which is generally seen in West countries and United States, firms have the capital and land. Different systems answer this question in different ways.

Factors of Production
Factors of Production

What does the factor Inputs get?

The labor gets wage, capital gains interest, natural resources get rent according to the demand, and the entrepreneur gets profits. In real this factors and their returns cannot separated clearly. The factors of production are also known as factor inputs.

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