Factors of production

The inputs that are used in the production process to facilitate the production of the
goods and services which contribute to an economy's GDP. An input can be classified as
either labour, capital, land or enterprise, depending on the function that the input
serves in the production process. A summary of the main characteristics of the four
factors of production are highlighted in the table below.

 Labour represents the mental and physical human input into the production
process. Therefore the quantity (size of the workforce) and quality (productivity of
workforce) of labour affects the importance of labour in the production process of
any good or service. Factors such as increased education and training and an
increase in migration levels can result in an increase in output of an economy's
resources. Workers receive a wage based on their productivity and monetary value
to a company at any particular point in time i.e. for every hour of labour supplied by
workers this is in return for an hourly wage rate.
 Land represents all of the natural resources a country is endowed with such as the
land or the sea. However, it also includes all of the resources which can be extracted
and cultivated from those natural resources such as agricultural products from
farms. Developing countries are often land abundant (large endowment of natural
resources) and therefore specialise and rely upon the agricultural sector for
economic growth. The reward for land is rent as landowners rent the land out to
producers across the economy.
 Capital represents the goods which are used in the production process to help
produce the final product. It is made up of two different forms of capital: working
capital and fixed capital. Fixed capital represents the machinery, technology, and
buildings which are used to help produce the final goods and services. Working
capital represents the day-to-day capital used to help produce goods in the future,
this can include cash or the stock of unfinished inventories. Capital owners receive a
 reward of interest as producers increase their capital stock by taking out loans and
borrowing from the private sector. Therefore, interest represents the opportunity
cost of borrowing for firms and the reward for owners of each unit of capital.
 Enterprise represents the individuals that help organise the complex mix of factors
of production in the production process of any good or service so that a profit is
made as a result. Examples of enterprise may include managers or investors that
take risks in the company with their own money to gain a share of higher profits in
the future.