Chapter 3- Factors of Production

3.1 The Factors of Production

- The resources available to an economy are classified as the factors of
production
- These factors allow an economy to produce a wide range of goods and
services in order to meet the needs of its population.
- Land: land is a very versatile factor of production as it includes all
natural resources such as wood, water, sun and of course land itself
- The quantity and quality of land is important as bad quality
land can be counted as useless or redundant while too little or
too much of a resource can make the factor of production have
little to no use.
- Having land = rent
- Labour: Labour can be described as human resources or the human
capital. The skill and intellect that people have and can use in order to
produce goods and services.
- Not every person can work
- Some people don't fit in the age requirements(they may
be too young or too old).
- Some people choose not to work because of possible
family or social reasons.
- Some people have certain medical conditions that may
stop them from working
- There may be certain cultural limitations that keep
certain groups of people from working or doing certain
jobs (eg. women)
- Some countries rely on immigrant workers
- The quality of labour is essential for economic growth
- Doing labour = wage or salary
- Capital: the physical resources that are made by humans that are meant
to aid in production.
- Capital includes a wide range of things (eg. factories,
machinery, cubicles etc.)
- The quality and quantity of capital is very important for the
production of goods and services, just like land and labour
- Capital = interest
- Enterprise: a form of human capital
- Organises or combines all factors of production in order to
produce goods and services
- Entrepreneurs are people who are prepared to take risks and
take an idea and turn it into a business.
- Enterprise = profit
3.2 The Difference Between Human Capital and Physical Capital
- Capital as a factor of production can be more accurately described as physical
capital
- The development and quality of physical capital is considered to be
very important in regards to economic growth in low and
lower-middle-class countries.
- Labour is a factor of production that refers to human capital.
- Human capital is the value of labour in the sense of how it can
potentially help in the growth of the economy
- It includes human abilities such as skills, knowledge and experience.
- These can affect the future earnings of both individuals and the
economy

3.3 Specialisation and the Division of Labour

- Specialisation- when a government, firm or individual focuses on producing
certain goods and services rather than others.
- No one is self sufficient
- When specialising, surplus is formed which can be traded for other
surpluses of other goods and services
- And specialised skills can become redundant due the technological
pace of our world, this means it is safer for individuals to be
multiskilled in order to move between occupations if needed.
- Changes in consumers' wants can lead to the production of certain
goods and services to be no longer required to the same extent as it was
previously, this could cause unemployment.
- There are policies that are put in practice to help in the case of
economic and social problems that may be a result of specialisation.
- The division of labour- when a work process is separated into a series of
simple tasks made so that more people can work on a project by focusing on
their own designated task.
- Makes production more fast and efficient
- Allows for final product to be cheaper as multiple people work on it
rather than one person taking all the burden
- Allows for people to gain specialisation in certain tasks and skills
- This leads to an increased output per worker and an increase in
the quality of each product
- Technologies such as conveyor belts makes this process even more
efficient

3.4 The Role of the Entrepreneur

- Entrepreneurs are those who:
- Organise the factors of production in order to produce goods and
service as a result of a business opportunity.
 - Are prepared to take risks as they use their own resources (or have to
borrow) in order to achieve their goals in the form of a successful
business.
- If they fail, they will lose all they put into their business
- Successful entrepreneurs require certain skills and qualities such as:
- Decision making skills
- Leadership
- Good fortune
- Anticipation of current and future needs
- Is able to produce what is favourable to the market
- Is able to take risks
- Are creative and innovative
- Can put together the factors of production to make a business
opportunity.