The entrepreneur uses capital, labor, and land to produce goods or deliver services.Ī good entrepreneur will use the factors of production to make a profit. EnterpriseĮnterprise or entrepreneurship is what we require to combine the other three factors of production. A teacher, for example, uses textbooks, computers, a whiteboard, and desks to deliver education services.ĭoctors, on the other hand, use stethoscopes, thermometers, and an examination room to deliver medical services.Ĭapital’s factor income is interest. What kind of work we do determines the type of capital we use. Delivery vehicles, conveyor belts, hammers, and forklift trucks, for example, are items of capital It includes every element that we use to produce things. CapitalĬapita includes building, tools, machines, and vehicles. Labors factor income is wages, i.e., the money people receive for the work they have done.įor most people, their largest source of income comes in the form of wages. When you order a meal in a restaurant, for example, labor includes everything the waiter, chef, and bartender do.Īny human who has received payment for work has contributed labor resources to the production of things. Labor, in this context, refers to workers’ efforts in the creation of goods and services. It also includes anything that comes from the land such as a natural resource or agricultural production.įorests, coal, copper, oil, and natural gas, for example, belong to the common land or natural resources category.Įconomists say that land’s factor income is rent. Gifts, subsidies, and donations, for example, belong to the transfer income category.Īccording to Wikipedia: “Factor Income is income derived from selling the services of factors of production.” But capital is the part of this wealth that is currently in productive use. Wealth is the sum of all money, goods, human values, etc that can be useful in the production of further wealth. The notion of land as a factor of production is broad and.
“Returns received on factors of production: rent is return on land, wages on labor, interest on capital, and profit on entrepreneurship.”ĭo not confuse the term with ‘ transfer income.’ Transfer income is income received without providing any service or good in return. Returns to Scale (Production Function) Production Optimisation Capital as a Factor of Production We can define capital as the productive part of a firm’s wealth. Capital, labor, land, and entrepreneurship are the four main production factors. Factors of production are the inputs we use to produce things so that we can make a profit.Įconomists divide the factors of production into four different categories: Land, Labor, Capital, and Enterprise.Įach factor of production, when we put it into use, provides us with an income, i.e., a factor income.ī has the following definition of the term: The factors of production are the building-blocks of the economy. Factor income is income we receive from at least one of the four factors of production.
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