The labor needs of a paper company would probably differ substantially from the labor needs of a computer company, even if both needed the same number of employees.Ĭapital refers to the human-made equipment required to produce goods and services. Labor includes not just the number of employees but also the various abilities called for from workers. The factory workers, office workers, marketing staff, and sales staff of the paper company would all be considered labor. Labor refers to the workers necessitated to produce goods and services. All of these things are alike in that they are provided by nature rather than made by humans. In economics, terms as various as gold, soil, forests, oil, coal, air, lakes, rivers, wildlife, fish, the sun, and even outer space fall under the heading of land.
Among the resources that the paper company requires, the trees and water used to make paper would be classified as land, as would the ground on which the factory, warehouse, and office buildings are located. Land refers to all of the natural resources that businesses need to make and distribute goods and services. Though the number and variety of the different resources businesses require is limitless, economists divide the factors of production into three basic categories: land, labor, and capital. Together, these resources constitute the factors of production necessary for the paper company to do business. Some of these items, such as workers’ skills, might be intangible. It might need thousands more resources of varying size and cost. It might require a thousand workers to run the factory, take orders, market (or sell) the paper, and deliver it to wholesalers or retail stores.
#4 FACTORS OF PRODUCTION AND DEFINITIONS FULL#
A paper company might need, among many other things, trees, water, a large factory full of heavy machinery, a warehouse, an office building, and delivery trucks. In economics the term factors of production refers to all the resources required to produce goods and services. Another example is if a business has £5,000 and has to choose between using the money for a new advertising campaign or more training for its staff, they must weigh up the opportunity costs of picking one option over the other.Factors of Production: Land, Labor, Capital What It Means For example this could be when a business must choose between two different office locations, they will face opportunity costs for the location they do not choose. Enterprise - This is the entrepreneur who takes a risk and creates the business using the other three factors of production.Īn opportunity cost is something that is given up in order to do something else.Capital - This is the machinery and equipment needed by the business to make the products or provide the service.Labour - This includes the staff needed by the business and the skills and qualifications they have.
This includes non-renewable resources such as gas and oil and renewable resources such as wind power.
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