What are 'Factors Of Production'

Factors of production is an economic term that describes the inputs that are used in the production of
goods or services in order to make an economic profit. The factors of production include land, labor,
capital and entrepreneurship. These production factors are also known as management, machines,
materials and labor, and knowledge has recently been talked about as a potential new factor of
production.

Land (economics)

From Wikipedia, the free encyclopedia

This article is about Land economics. For the journal, see Land Economics (journal).

In economics, land comprises all naturally occurring resources whose supply is inherently fixed[1].
Examples are any and all particular geographical locations, mineral deposits, forests, fish stocks,
atmospheric quality, geostationary orbits, and portions of the electromagnetic spectrum. Natural
resources are fundamental to the production of all goods, including capital goods. Location values must
not be confused with values imparted by fixed capital improvements. In classical economics, land is
considered one of the three factors of production (also sometimes called the three producer goods)
along with capital, and labor. Land is sometimes merged with capital to simplify micro-economics.
However, a common mistake is combining land and capital in macro-analysis. Income derived from
ownership or control of natural resources is referred to as rent.

Land was sometimes defined in classical and neoclassical economics as the "original and indestructible
powers of the soil."[2] Georgists hold that this implies a perfectly inelastic supply curve(i.e., zero
elasticity), suggesting that a land value tax that recovers the rent of land for public purposes would not
affect the opportunity cost of using land, but would instead only decrease the value of owning it. This
view is supported by evidence that although land can come on and off the market, market inventories of
land show if anything an inverse relationship to price (i.e., negative elasticity).

As a tangible asset land is represented in accounting as a fixed asset or a capital asset.

Land, particularly geographic locations and mineral deposits, has historically been the cause of much
conflict and dispute; land reform programs, which are designed to redistribute possession and/or use of
geographic land, are often the cause of much controversy, and conflicts over the economic rent of
mineral deposits have contributed to many civil wars.

Labor

Study of economic behavior of employers and employees in response to changing prices, profits, wages,
and working conditions.
Read more: http://www.businessdictionary.com/definition/labor-economics.html

Capital

In economics, capital consists of anything that can enhance a person's power to perform economically
useful work. Capital goods, real capital, or capital assets are already-produced, durable goods or any
non-financial asset that is used in production of goods or services.[1]

Adam Smith defines capital as "That part of a man's stock which he expects to afford him revenue". The
term "stock" is derived from the Old English word for stump or tree trunk. It has been used to refer to all
the moveable property of a farm since at least 1510.[2]

How a capital good is maintained or returned to its pre-production state varies with the type of capital
involved. In most cases capital is replaced after a depreciation period as newer forms of capital make
continued use of current capital non profitable. It is also possible that advances make an obsolete form
of capital practical again.

Capital is distinct from land (or non-renewable resources) in that capital can be increased by human
labor. At any given moment in time, total physical capital may be referred to as the capital stock (which
is not to be confused with the capital stock of a business entity).

In a fundamental sense, capital consists of anything that can enhance a person's power to perform
economically useful worka stone or an arrow is capital for a caveman who can use it as a hunting
instrument, and roads are capital for inhabitants of a city. Capital is an input in the production function.
Homes and personal autos are not usually defined as capital but as durable goods because they are not
used in a production of saleable goods and services.

In Marxian political economy,[3] capital is money used to buy something only in order to sell it again to
realize a financial profit. For Marx capital only exists within the process of economic exchangeit
is wealth that grows out of the process of circulation itself, and for Marx it formed the basis of the
economic system of capitalism. In more contemporary schools of economics, thi

Entrepreneur

Entrepreneurial economics is the study of the entrepreneur and entrepreneurship within the economy.
The accumulation of factors of production per se does not explain economic development. They are
necessary inputs in production, but they are not sufficient for economic growth.