Factors of production refers to the resources that are directly used in the production of goods or services for the aim of making profit. In economics, there are four major factors of production that are used in production process which are land, labour, capital and entrepreneurial talent.
Land
Land as a factor of production involves all natural resources found in it that can be used in production of goods or services. Such of natural resources found in land include soil, water, air, fuels and forests. Land is very important in production process as it provides raw materials used in manufacturing of products, but also it provides space for setting up the site for production structure. Some natural resources found in land are renewable such as water and minerals and some others are nonrenewable such as fuels and forests.
Labour
Labour involves physical and mental efforts that humans contribute in production process. Labour can be skilled or unskilled. Skilled labour are experts and usually limited and expensive to employ than unskilled labour. Labour is a most difficult resource to deal with because it involves humans.
Capital
Capital includes all man made goods or assets that used in production of goods and services. Example of capital goods are buildings, machinery and roads, but also permanent improvement of land such as fences and terraces are included in capital. Most of people in the society think that money is capital, but in economics money is not considered as a capital unless it is used to buy real capital assets or goods. Moreover, There are three categories of capital which are fixed capital, operating or working capital and liquid capital. Fixed capital are producer goods that are completely not used in production process, for example buildings and machinery. Operating or working capital are the raw materials that normally completely used in a production process, for example fuel and cotton wool. Liquid capital is money that used to acquire real capital goods or assets that can be used in production of goods or services.
Entrepreneurial talent
Entrepreneurial talent or entrepreneurship refers to the ability of making profit through utilization of resources (land, labour and capital). It is based on decision making and risk taking.
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4 factors of production
