Meaning of Factors of Production

This are the inputs needed for the production or manufacturing of goods and service. The factors of production include *land, 

*labor,

*capital and

*entrepreneurship

Modalities Factors of Production Work

In recent time, factors of production is derived from the neoclassical view of economics. It involves building of past approaches to economic theory, such as the concept of labor as a factor of production from socialism, into a single definition. 

The 4 Factors of Production

There are four factors of production—land, labor, capital, and entrepreneurship.

Land As a Factor

Land has a broad definition as a factor of production and can take on various forms, from agricultural land to commercial real estate to the resources available from a particular piece of land. Natural resources, such as oil and gold, can be extracted and refined for human consumption from the land.

Cultivation of crops on land by farmers increases its value and utility. For a group of early French economists called “the physiocrats,” who predated the classical political economists, land was responsible for generating economic value.

While land is an essential component of most ventures, its importance can diminish or increase based on industry. For example, a technology company can easily begin operations with zero investment in land. On the other hand, land is the most significant investment for a real estate venture.

Labor As a Factor

Labor refers to the effort expended by an individual to bring a product or service to the market. Again, it can take on various forms. For example, the construction worker at a hotel site is part of labor, as is the waiter who serves guests or the receptionist who enrolls them into the hotel.

Within the software industry, labor refers to the work done by project managers and developers in building the final product. Even an artist involved in making art, whether it is a painting or a symphony, is considered labor. For the early political economists, labor was the primary driver of economic value. Production workers are paid for their time and effort in wages that depend on their skill and training. Labor by an uneducated and untrained worker is typically paid at low prices. Skilled and trained workers are called “human capital” and are paid higher wages because they bring more than their physical capacity to the task.

For example, an accountant’s job requires the analysis of financial data for a company. Countries that are rich in human capital experience increased productivity and efficiency. The difference in skill levels and terminology also helps companies and entrepreneurs create corresponding disparities in pay scales. This can result in a transformation of factors of production for entire industries. An example of this is the change in production processes in the information technology (IT) industry after jobs were outsourced to countries with lower salaries.