Unit 1.3 - Factors of production

• Factors of production


  Land, labour, capital, enterprise
• Land


  • More than just the physical space on which a firm is located - all natural resources
  • Includes mineral deposits, rivers, lakes, climate and the land/soil itself
  • The reward for land is rent or income (from minerals extracted)
  • Quantity and quality of land is important regarding sustainability
• Labour


  • Quantity and quality of labour plays a role in productivity
  • Skill level
  • Education level
  • Population size
  • Cultural limitations
  • Immigration / immigration levels
  • The reward for labour are wages or any other earnings
• Capital


  • Anything regarded as man-made
  • Factories, machinery, IT, infrastructure, electricity and water supply, railways, pipelines etc
  • The reward for capital is interest or the financial return on the capital resource
• Physical capital


  • The result of more resources being made by businesses and government
  • The quantity and quality of physical capital is often considered the most important source of economic growth in low income countries
• Human capital


  • The value of labour to the production potential of an economy
  • Includes skills, knowledge and experience. This can affect the future earnings of individuals and firms
• Enterprise


  • The ability and inventiveness of the entrepreneur
  • Prepared to take risks
  • Organises the factors of production
  • The reward for enterprise is profit
• Entrepreneur


  1. Organise production

  2. Take risks
• Specialisation


  • A process where individuals, firms and economies concentrate on producing those goods and services where they have an advantage over others
  • A way to produce more goods and services in an economy (surplus)
  • No one is self-sufficient. There is a need for trade / exchange of goods
  • Has improved standard of living - global expansion
  • Challenge: redundancy
• Division of labour


  • Where a manufacturing process is split into a sequence of individual tasks
  • Often quicker and cheaper to produce goods compared to one person doing the whole process
  • Allows for specialisation
  • Leads to an increased output per worker and an improvement in quality
• Think, Pair, Share questions