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A productive resource is something we depend on or use to fulfill an objective.

Individuals stress a considerable measure over the assets on which they depend. They settle on
choices about what to do ahead of time and sensibly stress that the costs they are acclimated to
might rise. They stress that an expansion in populace or even simply more individuals living in the
region in which they live, work, or exchange could change what they underestimate or depend on.
They stress that in a most dire outcome imaginable, the resources they depend on might vanish or
run out altogether. In economics, it is most common to divide productive resources into three
categories--land, labor, and capital--which are sometimes called the basic factors of production.
An alternative division is to think of resources as either natural or produced. Apart from this, the
project focuses on other aspects whether entrepreneurship and money can be classified as
Productive Resources or not.


The object is to study various factors involved in the process of production. This project reviews
various pieces of literature found using secondary source.


The methodology adopted is largely analytical and descriptive. Reliance has been placed largely
on secondary sources like books and articles. The lectures and classroom discussions have been
rich with valuable pointers and gave direction to the research.

The project shall include a detailed analysis of how productive resources are important for the
setting up of a business individually and will also contain a detailed discussion of the factors that
are directly related to the same.

This project has been divided in various chapters. It consists of following chapters, Introduction,
1 Articles, 1 News Report, and 2 Research Papers.

 What is the importance of Productive Resources?
 Whether Entrepreneurship is the fourth factor of production?
 Through the reviews- if employment and factors of production affect each other;
connection between the market and the productive resource.
 Whether money can be classified as a factor of production?



1. Introduction 5

2. Article- Factors of Production: Classification and

Importance1 9

3. Research Paper- Productive Resources, Analysis 11

4. News Report- Unemployment and factors of 13

5. Research Paper- The Market of Factors of 14
6. Money- A Productive Resource? 15

7. Position in India 16

8. Conclusion 17

9. Bibliography 18


A resource is something we rely on or use to accomplish a goal. If you are trying to read a book, a
dictionary is a resource you might rely on. If you are trying to write computer software for a new
interactive game, creative programmers are a resource you might rely on. If you are trying to run
a factory, labor and available land are resources you might rely on. If you are trying to heat your
home or melt steel for car production, gas, oil, coal, and electricity are resources you might rely

People worry a lot about the resources on which they depend. They make decisions about what to
do in advance and reasonably worry that the prices they are accustomed to might rise. They worry
that an increase in population or even just more people living in the area in which they live, work,
or trade could change what they take for granted or rely on. They worry that in a worst-case
scenario, the resources they rely on might disappear or run out entirely.

In economics, it is most common to divide productive resources into three categories--land, labor,
and capital--which are sometimes called the basic factors of production. An alternative division is
to think of resources as either natural or produced. Both approaches offer good ideas.

The economic study of resources is the study of how resources we sometimes take for granted--
the people, land, natural endowments of our countries and the earth--also respond to incentives.
The size of the population and the size of reserves or resources are more flexible than you might
first think.


Productive resources are materials used to produce goods and services. They can be both tangible,
as in capital and raw materials, and intangible, like ideas, for example. Economics is basically
about how these productive resources interact in the process of production and how the resources
are utilized by people. Goods and services don’t just come out of nothing; they are drawn from
other material, and are processed or manufactured. One would not be wrong, therefore, to say that
anything that is involved in the process of producing goods and services is a productive resource.
This includes labor, land and the raw materials as well as the entrepreneurship skill.
In economics, factors of production, resources, or inputs are what is used in the production process
to produce output—that is, finished goods and services. The amounts of the various inputs used to
determine the quantity of output according to a relationship is called the production function. There
are three basic resources or factors of production: land, labor and capital. The factors are also

frequently labeled "producer goods or services" to distinguish them from the goods or services
purchased by consumers, which are frequently labeled "consumer goods". All three of these are
required in combination at a time to produce a commodity.

There are two types of factors: Factors of production may also refer specifically to the previously
mentioned primary factors, (land, labor (the ability to work), and capital goods) applied to
production. Materials and energy are considered secondary factors in classical economics because
they are obtained from land, labour and capital. The primary factors facilitate production but
neither become part of the product (as with raw materials) nor become significantly transformed
by the production process (as with fuel used to power machinery). Land includes not only the site
of production but natural resources above or below the soil. Recent usage has distinguished human
capital (the stock of knowledge in the labor force) from labor2
Entrepreneurship is also sometimes considered a factor of production.3

Sometimes the overall state of technology is described as a factor of production.4 The number and
definition of factors varies, depending on theoretical purpose, empirical emphasis, or school of


 Natural resources are things that occur naturally. "Gifts of nature" that can be used to produce
goods and services; for example, oceans, air, mineral deposits, virgin forests and actual fields of
land. When investments are made to improve fields of land or other natural resources, those
resources become, in part, capital resources. Also known as land.Capital resources are otherwise
known at tools. Examples include factories, machines, hammers and spoons.

Land: It is difficult to imagine any business going on without land. Land is the ultimate natural
resource required for nearly every economy. Even though the world today has embraced new
technology, with concepts such as online business coming into play, land is still a requirement for
every economy. Business has to take place somewhere, and inevitably, this somewhere is on land.

Paul A. Samuelson and William D. Nordhaus (2004). Economics, 18th ed., "Factors of production", "Capital",
Human capital", and "Land" under Glossary of Terms.
Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey
07458: Pearson Prentice Hall. p. 4. ISBN 978-0-13-063085-8. Cite uses deprecated parameter |coauthors= (help)
Michael Parkin; Gerardo Esquivel (1999). Macroeconomía (in Spanish) (5th ed.). Mexico: Addison Wesley. p. 160.
ISBN 968-444-441-9.
Milton Friedman (2007). Price Theory. Transaction Publishers. p. 201. ISBN 978-0-202-30969-9.

Returns from land are referred to as rent, which is the actually the perceived value of the land. The
value of land depends on factors such as location, size, fertility and the level of developments that
have been done on that piece of land.

 Human resources are otherwise known as laborers. The health, education, experience, training,
skills and values of people. Also known as human capital. Examples would include the factory
worker, the farmer who harvests corn and the child who cleans his room.

Labor is a human resource that is basically about the work done by humans in a bid to produce
goods and services. Returns from labor are called wages, which are the payments people get when
they work. Wages vary according to the type of work as well as the level of expertise of an

 Entrepreneurship: A characteristic of people who assume the risk of organizing productive

resources to produce goods and services; a resource.

This is the skill that enables one to start off a business. In a typical setting, an entrepreneur starts
and owns a business, along with the ideas of that business. An entrepreneur is a decision maker in
the business, and he is the one who invests his capital into the business. Therefore, an entrepreneur
expects returns from the business, which come in form of profits earned after selling the goods and

 Capital Resources: Resources and goods made and used to produce other goods and services.
Examples include buildings, machinery, tools and equipment. In the context of credit transactions,
capital is one of the Three Cs of Credit. It is an indicator of how creditworthy a prospective
borrower is likely to be as determined by the borrower's current financial assets and net worth.
Capital refers to the initial wealth of a business entity; the amount of money a business starts off
with. However, it may not necessarily be in form of money. Other forms of capital include raw
materials and equipment. Whatever one earns from capital is called profit.


Marx considered the "elementary factors of the labor-process" or "productive forces" to be:

 Labor
 The subject of labor (objects transformed by labor)
 The instruments of labor (or means of labor).6

The "subject of labor" refers to natural resources and raw materials, including land. The
"instruments of labor" are tools, in the broadest sense. They include factory buildings,

Das Kapital", chapter 7, section 1.

infrastructure, and other human-made objects that facilitate labor's production of goods and

This view seems similar to the classical perspective described above. But unlike the classical
school and many economists today, Marx made a clear distinction between labor actually done
and an individual's "labor power" or ability to work. Labor done is often referred to nowadays as
"effort" or "labor services." Labor-power might be seen as a stock which can produce a flow of

Labor, not labor power, is the key factor of production for Marx and the basis for Marx's labor
theory of value. The hiring of labor power only results in the production of goods or services ("use-
values") when organized and regulated (often by the "management"). How much labor is actually
done depends on the importance of conflict or tensions within the labor process.


Factors of Production: Classification and Importance7
-Article Shared by Natasha Kwatiah

This article discusses various Factors of Productions; its classification and the importance of such
Productive Resources.
A factor of production may be defined as that good or service which is required for production. A
factor of production is indispensable for production because without it no production is possible.
It is customary to attribute the process of production to three factors, land, labour and capital, to
which we add organization.

This article summarzises the different types of factors of production, starting with land which
include rivers, oceans, climate, etc (all gufts of nature). In the words of Dr. Marshall “By land is
meant materials and forces which nature gives freely for man’s aid, in land, water, in air, light and
heat.” Land is, thus, an important factor of production which helps in the production of goods and
services in one way or the other.

The next category is Labour. It refers to all mental and physical work undertaken for some
monetary reward but labour does not include any work done for leisure or which does not carry
any monetary reward.

In modern usage, capital not only refers to physical capital but also to human capital which is the
“process of increasing knowledge, the skills and capacities of all people of the country.” It is this
human capital which is regarded more important Organisation:

Land, labour and capital are respectively natural, human and material means of production No
production is possible without bringing together these three factors of production and employing
them in right physical capital in production these days. Organisation refers to the
services of an entrepreneur who controls, organises and manages the policy of a firm innovates
and undertakes all risks.


This articles also focuses on the criticism of these factors of production. The above classification
of factors has come in for criticisms at the hands of many economists. Benham has objected to the
wider meaning of land as a factor of production. According to him, it is more convenient to
consider only the land which can be bought and sold as a factor of production, rather than such
elements as sunshine, climate, etc. which do not enter directly into costs.

Similarly, it is wrong to group together the services of an unskilled worker with that of an engineer,
or of an engine driver with that of a waterman in the railways.

Again, the distinction between land, labour and capital is not clear. This is not correct because the
supply of land can also be increased by clearing it, draining and irrigating it and fertilizing it by
the efforts of man and capital. The “supply of land” does not refer to its area alone, but to its we
might regard each unit of a factor as distinct from other units of that factor, but one factor can be
substituted for some other factor.

Keeping the future in view, land may be put to more productive uses, labour may be trained for
different occupations requiring higher skills, and capital may be used for producing more
roundabout methods of production and machinery. Thus the central economic problem for any
community is how to make the best use of its labour and other resources, and for this purpose the
community must consider the various alternatives.

Moving on to the importance of the factors of production, The concept of the factor of production
is of great importance in modern economic analysis. It is used in the theory of production in which
the various combinations of factors of production help in producing output when a firm operates
under increasing or decreasing costs in the short-run, and when the returns to scale increase or
decrease in the long-run.
Further, we can also know, how can the least-cost combination of factors are obtained by a firm?
Lastly, the concept of factor of production is used in explaining the theory of factor-pricing. For
this purpose, factors of production are divided into specific and non-specific. A factor of
production which is specific in use earns a higher reward than a non-specific factor. This also
solves the problem of distribution of income to the various resource-owners.

Volume Author/Editor: Frederick C. Mills

This paper deals with the pattern of growth in the United States over half a century i.e., from 1901
till 1950. It thus, talks about the various factors included in the rise of the various factors of
production and the different causes of an increase in the consumption level as a result.

The characteristics of an economié are defined not alone by the magnitude and sources of its
productive power. The purposes for which productive resources are used are the most significant
indicators of its pattern of life. These purposes reflect the collective desires and needs of the
individuals who make up the system. Basic wants for food, clothing and shelter, desires for
satisfactions above subsistence levels, the role of instrumental goods in the productive process,
and compulsions imposed by necessities of war or defense all manifest in the patterns of use that
prevail at given times. Such uses, in the aggregate, are shown by the familiar national income and
national product classifications that have been developed within recent decades for this and other

A somewhat different classification of uses has been employed in this study. Here we think of
economic resources as being used for three broad purposes — maintenance, defense, and progress.

This article distinguishes between various maintenance needs, and progressive needs through
graphical representation, from the year 1901 to 1950. There is also an analysis of the consumpution
levels with the expansion of capital plants, in the said years. These are done in order to understand
the progress made in the economy, through rise in per capita consumption level.

In spending for war and defense we are diverting resources to necessary protection, but these uses
do not represent social or individual advances. In adding to capital we are building instruments,
not end products. But in augmenting resources used for consumption we are adding to the goods
and services that enrich living. The three decades — first, third, and fifth for which the "progress"
totals were greatest brought the sharpest gains in consumption.

(This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research)
Volume Title: Productivity and Economic Progress
Volume Publisher: NBER
Volume ISBN: 0-87014-353-0
Volume URL:
Publication Date: 1952
Chapter Title: Uses of Productive Resources
Chapter Author: Frederick C. Mills
Chapter URL:
Chapter pages in book: (p. 9 - 21)

This article also talks about the depression period. Protracted depression brought retrogression in
the thirties. The forties witnessed an extraordinary outburst of productive power. Drawing upon
great additional resources of manpower and using improved equipment and new productive
techniques, we provided war materials in massive proportions; in the same decade we lifted
consumption levels to heights never before attained. Obtaining a clearer view of the historical
course of consumption levels by reducing the consumption increments to per capita terms, and
showing each decade gain against the pre-existing level Of per capita consumption.
The thesis that industrial development is necessarily marked by increasing misery would be hard
to defend in the light of this record.
On the role of the productivity increment in progress Decade after decade the major portion of the
resources making up the margin above maintenance needs has been used for progress — to elevate
consumption levels arid to expand our capital plant. The resources so used are not sharply defined.
We do not earmark for particular uses certain additions to labor input, certain new plants, or
specified productivity gains. Nevertheless, we may ask what part has been played in the economic
advances of the last fifty years by the increments to product attributable to gains in productivity.
We cannot trace particular gains to particular results, but it is suggestive to compare the magnitudes
of productivity gains, margins above maintenance needs, and resources used for progress.
In considering productivity gains as a factor in economic and social progress, we must not regard
productivity as an independent first cause, nor overlook the reverse influence of progress on
productivity. We may not say that there would have been no progress in the second and third
decades had there been no productivity gains, or that the increment to product available for
progress would have, been reduced by fifty to sixty per cent in the first and fifth decades if manhour
output had not increased. For if productivity had not increased, complex related processes would
have been modified. Hours of work would not have been reduced as they were in the twenties and
thirties if manhour output.had not gone up; the size and degree of use of the labor force would
have been akered somewhat; the capital plant would not have grown as it did, and capital
maintenance requirements would have been less. In the interactions of the factors in economic
change, productivity gains were at once cause and effect of these associated movements in capital
supply, in the labor force, and in working conditions. Yet there can be no doubt, from the relative
magnitudes involved, that the productivity factor, as a closely correlated variable, has played a
major part in the advances in consumption levels and the expansion of capital plant that constitute
economic progress.
The paper has discussed the pattern of economic growth of the United States over the half century.
The materials presented bear on questions. central to the appraisal of an economic system. Has it
produced? Has it grown in effectiveness as a producing mechanism? It was Ernest Bevin's view
that the central test of an economy is "Has it delivered the goods?". But this cannot be the sole
criterion of judgment. We must ask "How has productive power been used?" This question raises
issues beyond the economic. Arnold Toynbee has said that the new power found through the
simplification of process that generates the growth of civilizations always presents a moral
challenge. Disposable resources may be used to promote welfare or illfare. In a progressive
economy, marked by steadily recurring productivity increments and expanding margins above

maintenance needs, each generation faces this challenge anew. Our economy, in its performance
over the first half of the twentieth century, has clearly met Bevin's test. We have used our natural
resources to produce a great and growing volume of goods and services. Apart from the protracted
check that came in the thirties, the advance has been virtually unbroken. By far the greatest factor
in this gain has been rising productivity. Machines, plants, administrative methods, and men have
improved in productive quality; equipment has grown in quantity; flexible power has been carried
to assembly line and bench. These improvements, embodied in innumerable major and minor
working methods, have brought an increase in output per unit of productive effort that is probably
without precedent in our history.

Unemployment and factors of production9
Analyzing this small piece of news report- the unemployment rate arising due to the change in
factors of production in the
South African nations.
Why does the Government keep promising more jobs for the jobless in South Africa when they
know deep in their heart that there will be no improvement of employment in the formal and to a
lesser extent in the informal sector until such time they understand and address the 4 factors of
Politicians promise that they will create jobs – how? Where will these jobs come from?
The 4 factors of production, Labour, Capital, Natural Resources, and Entrepreneurship are key to
the improvement and sustainability of any economy. Although all factors are as important as the
other, it must be stressed that entrepreneurship is the vital and most important key to South Africa’s
future growth and prosperity.
South Africa is blessed with natural resources and labour, capital is abundant. The only element
missing in South Africa is entrepreneurship.
how does the small business expand with no access to finance from the formal sector.
Until the South African Government as well as the big banks understand that the only way to grow
an economy is through promoting and financing small business thereby creating employment, the
jobs problem in this country will only worsen.
The Misallocation of Land and Other Factors of Production in India
-Gilles Duranton, Ejaz Ghani, Arti Grover Goswami, William Kerr


This paper quantifies the misallocation of manufacturing output and factors of production between
establishments across Indian districts during 1989–2010. It first distills a number of stylized facts
about misallocation in India, and demonstrates the validity of misallocation metrics by connecting
them to regulatory changes in India that affected real property. With this background, the study
next quantifies the implications and determinants of factor and output misallocation. Although
more-productive establishments in India tend to produce more output, factors of production are
grossly misallocated. A better allocation of output and factors of production is associated with
greater output per worker. Misallocation of land plays a particularly important role in these
First, there have been many studies arguing the importance of misallocation. The consequences of
misallocation are usually inferred indirectly by asking a model what would be the aggregate
consequences of reduced misallocation. Second, increasing the productivity of factors of
production, fostering their accumulation, and reducing their misallocation can only be viewed as
proximate causes of economic growth and development. Third, highlight the uniquely important
role played by land and buildings in misallocation.
The paper deals with an analysis of the main challenges with two simple observations. The first is
to develop a methodology that allows us to explore the effects of misallocation and its determinants
in a cross-section of districts. The second main challenge is one of data. First, Olley-Pakes
misallocation indices can be computed not only for output but also for each factor of production
separately. Second, these misallocation indices need not be computed exclusively at the country
The Market of Factors of Production10
This paper distinguishes between 3 factors of production which are used in the production of goods
i.e., Land, Labour and capital. Also some economists mention enterprise, entrepreneurship, as a
fourth factor of production.
This paper also explains various terms like TP, MP, Demand, Supple, TRP, MRP, MFC, etc.
Land and labour are primary factors of production because they are given by biological needs and
demography. The revenue for eland is the rent. Clear (pure) economic rent takes into consideration
only quantity of land, but land differs also by its quality and location. Rent is called “clear
economic rent” under 2 conditions:
• Total supply of this factor of production is perfectly inelastic
• Land is used only for agricultural production
Quality and location of land influence the price.


Law of demand and Law od supple regarding the land are also discussed in the paper.
The Common Agricultural Policy
The Common Agricultural Policy (CAP), dates from the early 1960s, is a system of European
Union agricultural subsidies which represents about 44% of the EU's spending.
Objectives of CAP are to:
• Increase agricultural productivity
• Ensure a fair standard of living for farmers
• Stabilise markets
• Guarantee regular food supplies
• Ensure reasonable prices to consumers
The CAP provided an incentive to farmers to increase their agricultural productivity and to make
use of the factors of production; capital, enterprise, land and labour.
Labour is a meaningful activity with the aim to create goods and services. Labour does not exist
itself, the bearer of labour is the man. Revenue for labour - wage.(Further distinguished into hourly
rate and piece rate)
Trade unions - influence labour market, negotiate with the employers as the representatives of
Capital goods – are not used for final consumption, but for production of other goods.


In economic terms, money is not a factor of production because it is a resource used to acquire
resources that go into producing goods. The factors of production are capital, labor, and land.

Money is needed to start a business as the questioner rightly asserts. However, it is not a factor of
production. Money is used to purchase or pay for (in the case of labor) factors of production.

Capital is used to create goods or services and can make workers more productive in the
manufacturing process. For example an immense piece of machinery that bends steel into shape in
a car manufacturing plant is an example of a physical asset or product that was built to be used in

the manufacturing process. Money was needed to buy the machine, but it is not a factor in the
actual production.
Labor is the work that people perform during the production process. Laborers expend their
physical, emotional, intellectual, and mental resources in the production process. They are paid a
wage or salary for their efforts. However, money is not a factor of the production they are doing.
Money is their payment for engaging in a factor of production.11
Land is a factor of production that is not used up. It is essential to the production process because
without land there is no place to have a manufacturing facility, head office, and such. Land is a
fixed asset on a company’s balance sheet. Land is required as the starting point for the production
process. Money is used to purchase or rent land. Nonetheless, this money is not part of the actual
production process once a company is up and running.

India is one of the fastest growing economies in the world today but currently faces problems to
keep their momentum going. The land resources in India enclose approximately 1.3 million square
miles and is a cape protruding into the Indian Ocean, which is in between the bay of Bengal on the
east and the Arabian Sea on the west. Nearly half of the country is plains, also a third of the
country is filled with mountain ranges, and the last portion of the country is plateaus.
Today, with the growing industries and urbanization of India, an increased pressure has been put
on land, water, and other resources, mostly in the big cities. With a 9.8% unemployment rate, they
still have their struggles but have also have a portion of the population who hold jobs given out by
half the world who have outsources jobs to India amounting to a $47 billion dollar industry. It is
predicted that in the next three years 25% of the world’s workers will be Indian. With that being
stated, today India has 42% of the world’s poor living there and this creates lots of problems in the
The rising population is eating into the success of India. According to 2011 census of India, the
population of India has crossed one billion and is growing at a rate of 2.11%. Such a huge
population puts lots of stress on the economy's infrastructure of the entire nation. With their
manufacturing production being where it is today, it makes the growth of the manufacturing sector
to be able to provide a strong match for the skills of the Indian workforce. This would require more
urgent attention to improving the infrastructure in the areas of energy reliability and transportation.



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. In economic terms, money is not a factor of production because
it is a resource used to acquire resources that go into producing goods. Factors of production
include any resource needed for the creation of a good or service. At the core, land, labor, capital
and entrepreneurship encompass all of the inputs needed to produce a good or service. Land
represents all natural resources, such as timber and gold, used in the production of a good. Labor
includes all of the work that laborers and workers perform at all levels of an organization, except
for the entrepreneur. The entrepreneur is the individual who takes an idea and attempts to make an
economic profit from it by combining all other factors of production. The entrepreneur also takes
on all of the risks and rewards of the business. Capital is made up of all of the tools and machinery
used to produce a good or service.