5/20/2023 0 Comments Factors of production definitionProduction based on capital is called ‘capital intensive’ production, in contrast to ‘labour intensive’ production. The more a factor can be substituted the less it can exploit its relative scarcity. Factors can be substituted when possible, and this affects the relative reward. In basic economic theory, the more scarce and essential the factor the greater the reward. Factor incomes are: rent, wages, interest and profit. When factors are used they earn a reward called a factor ‘income’. The role of the entrepreneur is to combine the other factors in the most efficient way. Modern economists also refer to the environment as a fifth factor of production.įactors are traded in factor markets, including the labour market, the capital market and the market for commercial property. There are four basic factors, including land and natural resources, labour, capital and enterprise. Factors are the basic ‘building blocks’ of economic activity. The owners of capital receive their income in various possible forms profits and interest are the usual ones.Factors of production are the resource inputs needed by producers in order to create an output of goods and services. In the simplest sense, it refers to all the “produced” instruments of production-the factories, their equipment, their stocks of raw materials and finished goods, houses, trade facilities, and so on. The final category, capital, is a more complex one. The effort which the economist regards as qualifying may be either manual or mental, although in earlier periods, and apparently under communism, manual labour alone was considered a productive factor. The wage or salary is the form of payment for the use of this factor. The factor of labour represents all those productive resources that can be applied only at the cost of human effort. The income derived from the ownership of this factor is known as economic rent. The first represents resources whose supply is low in relation to demand and cannot be increased as the result of production. The productive factors are commonly classified into three groups: land, labour, and capital. The needed inputs may be scarce, and so constitute productive factors, either because they represent something which cannot be produced, like land (in the strictly economic sense), or because although their supply could be enlarged, like factories, to do so would be costly in terms of resources. Thus, if the input is scarce in relation to the need for it, it is regarded as a factor of production. If it has to be piped into a deep mine or underwater, however, it would then have to be treated like the other “economic resources.” From the standpoint of the whole economy, a cost is involved in using a resource if, as a result of this particular use, the production of something else which depends upon the same kind of resource is hampered. Some of these inputs in a normal situation are “free.” Although atmospheric air, for example, or a substitute for it, must be at hand to enable production to go on, it is not counted among the factors since it is available in most circumstances in practically unlimited quantities. Simply stated, factors of production are the “ inputs” necessary to obtain an “ output.” However, not all the “inputs” that must be applied are to be regarded as factors in the economic sense. SpaceNext50 Britannica presents SpaceNext50, From the race to the Moon to space stewardship, we explore a wide range of subjects that feed our curiosity about space!įactors of production, term used by economists to denote the economic resources, both human and other, which, if properly utilized, will bring about a flow or output of goods and services.These are the various factors by mean any resource is transformed into a more useful commodity or. Learn about the major environmental problems facing our planet and what can be done about them! Anything that helps in production is the factor of production. Saving Earth Britannica Presents Earth’s To-Do List for the 21st Century.100 Women Britannica celebrates the centennial of the Nineteenth Amendment, highlighting suffragists and history-making politicians.COVID-19 Portal While this global health crisis continues to evolve, it can be useful to look to past pandemics to better understand how to respond today.Student Portal Britannica is the ultimate student resource for key school subjects like history, government, literature, and more.This Time in History In these videos, find out what happened this month (or any month!) in history.#WTFact Videos In #WTFact Britannica shares some of the most bizarre facts we can find.Demystified Videos In Demystified, Britannica has all the answers to your burning questions.
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