Factors of Production
Class 08 Social ScienceEvery product goes through a production process before it finally reaches the consumer. This production process involves using resources or inputs required to produce the final product. The resources or inputs used in producing goods and services are hence called factors of production.
Businesses combine various inputs or factors of production to create goods and services, which also generate opportunities for people to engage in economic activities.
The inputs used in a production process or the factors of production are classified into four types:
- Land
- Labour
- Capital
- Entrepreneurship
Technology is a facilitator and a crucial factor that enables businesses to produce more goods with the same or fewer inputs.
Land (Natural Resources)
The word ‘land’ in economics encompasses not only geographical land but also natural resources like soil, forests, water, air, sunlight, minerals, oil, and natural gas. Businesses either purchase the required land or pay rent to use it for a period of time.
Labour (Human Resources)
Labour is essential in production, involving physical and mental effort. Carpenters, farmers, construction workers, teachers, and doctors use varying levels of physical strength, knowledge, and skill.
People as a resource
Human beings play a key role in economic activities and production processes as they apply their knowledge, skills, and decision-making abilities to create goods and services.
The word labour refers to the physical and mental effort used in production. However, human capital refers to the specialised skills, knowledge, abilities and expertise required to perform that labour. Thus, human capital is not just the basic efforts of labour but also the quality and efficiency of that labour.
Capital
Businesses also require capital that comprises monetary resources and durable assets like machinery, tools, equipment, vehicles, vending carts, computers, shops, factories, office buildings, etc., for their day-to-day operations.
Entrepreneurship
Entrepreneurship means starting your own business or creating something new to solve a problem. An entrepreneur is a person who comes up with an idea, takes risks, gathers other factors of production, and works hard to make their startup idea successful.
An entrepreneur’s vision for solving a problem helps bring innovative products and services to the market that benefit society and the nation. At the same time, they also create job opportunities and support livelihoods. In return, they derive a deep sense of satisfaction from seeing their dreams become a reality and serving the people.
Technology
Technology means the application of scientific knowledge. Old technology gets replaced by a new and better ones. This process makes it easier for people and businesses to get things done and improve how they work. For example, instead of sending letters by post, we now use email to communicate with people quickly and at a lower cost.
How are the Factors Connected?
The factors - land, labour, capital, entrepreneurship and technology are combined to produce goods and services, and the proportion of each factor used depends on the product. For example, output from the agriculture, construction, and handicraft sectors relies more on labour and thus is labour-intensive, while semiconductor chips or satellites require more capital, specialised machinery, and are capital-intensive.
These factors complement each other and are interconnected. In case of some missing or misused factors, production can become inefficient or can be halted.
The production inputs are available at different geographic locations. Businesses can procure them from these varied locations and combine the inputs to produce goods and services. Thus, the geographic inter-connected provides businesses with access to varied inputs.
However, production activities sometimes face severe supply chain challenges. The supply chain is a network of individuals, organisations, resources, activities and technology that are involved in the production and sale of goods.