Characteristics of Various Factors of Production
The four factors of production are inputs used in various combinations for the production of goods and services to make an economic profit. The factors of production are land, labor, capital, and entrepreneurship.
They are the inputs needed for supply. Mainly, the factors of production consist of any resource that is used in the creation of a good or service.
Since these factors are limited by nature, and human wants are unlimited, we, as a country, face a decision over the efficient allocation of these scarce resources or factors of production.
Sometimes the type of economic system decides the ownership of the factors of production. For example, in a Capitalist economy, the factors of production are owned by individuals who use them for their own profit.
Anything that helps in production is the factor of production. These are the various factors by mean any resource is transformed into a more useful commodity or service.
They are the inputs for the process of production. They are the starting point of the production process. Factors of production are the parameters which affect the output of production.
Types of Factors of Production
Factors of production have been categorized into four types
It refers to all natural resources. All natural resources either on the surface of the earth or below the surface of the earth or above the surface of the earth is Land.
One uses the land to produces goods. It is the primary and natural factor of production. All gifts of nature such as rivers, oceans, land, climate, mountains, mines, forests etc. are land.
The payment for land is rent.
Characteristics of Land as a Factor of Production
- The land is a free gift of nature.
- The land has no cost of production.
- It is immobile.
- The land is fixed and limited in supply.
Types of Land
All human effort that assists in production is labour. This effort can be mental or physical. It is a human factor of production. It is the worker who applies their efforts, abilities, and skills to produce.
The payment for labour is the wage.
Characteristic of Labour
- It is a human factor
- One cannot store labour
- No two types of labour are the same
Types of Labor
Capital refers to all manmade resources used in the production process. It is a produced factor of production. It includes factories, machinery, tools, equipment, raw materials, wealth etc.
The payment for capital is interest.
Characteristics of Capital
- Capital is a manmade factor of production
- It is mobile
- It is a passive factor of production
Types of Capital
An entrepreneur is a person who brings other factors of production in one place. He uses them for the production process. He is the person who decides
- What to produce
- Where to produce
- How to produce
A person who takes these decisions along with the associated risk is an entrepreneur.
The payment for land is profit.
Characteristics of Entrepreneur
- He has imagination
- He has great administrative power
- An entrepreneur must be a man of action
- An entrepreneur must have the ability to organize
- He should be a knowledgeable person
- He must have a professional approach