This is an economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labor, capital and entrepreneurship. s. Before the twentieth century, only three factors making up the “classical triad” were recognized: land, labor, and capital. Entrepreneurship is a fairly recent addition.
People cannot satisfy all their wants and needs because productive resources are scarce. The factors of production, or resources required to produce the things we would like to have, are land, capital, labor, and entrepreneurs. As shown in below diagram, all four are required to produce goods and services.
In economics, land refers to the “gifts of nature,” or natural resources not created by people. “Land” includes deserts, fertile fields, forests, mineral deposits, livestock, sunshine, and the climate necessary to grow crops. Because a finite amount of natural resources are available at any given time, economists tend to think of land as being fixed, or in limited supply.
Another factor of production is capital, sometimes called capital goods—the tools, equipment, machinery, and factories used in the production of goods and services. Capital is unique because it is the result of production. A bulldozer, for example, is a capital good used in construction. When it was built in a factory, it was the result of production involving other capital goods. The computers in your school that are used to produce the service of education also are capital goods.
A third factor of production is labor— people with all their efforts, abilities, and skills. This category includes all people except a unique group of individuals called entrepreneurs, whom we single out because of their special role in the economy. Historically, factors such as birthrates, immigration, famine, war, and disease have had a dramatic impact on the quantity and quality of labor.
Some people are singled out because they are the innovators responsible for much of the change in our economy. Such an individual is an entrepreneur, a risk taker in search of profits who does something new with existing resources. Entrepreneurs are often thought of as being the driving force in an economy because they are the people who start new businesses or bring new products to market.
Everything we make requires the four factors of production. The desks and lab equipment used in schools are capital goods. Teachers and other employees provide the labor. Land includes the property where the school is located as well as the iron ore and timber used to make the building. Finally, entrepreneurs are needed to organize the other three factors and make sure that everything gets done