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By Dana Griffin
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You need resources to produce goods and services. Relative to the needs and wants of businesses and people, however, the economic resources to produce them are finite, and therefore subject to scarcity. You must put resources to the most efficient use possible to maximize production. People depend on three distinct factors, referred to as the “factors of production,” to make what they want: land, labor and capital. Sometimes, economists add a fourth or fifth factor to account for human wealth or entrepreneurial activity.
Land
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Land refers not only to physical ground, but also natural resources available for production, including fossil fuels such as coal and oil and anything else not created by man. Nations supplied with natural resources can economically exploit these by specializing businesses in their resource. The only free unlimited land resource is the air you breathe: everything else is scarce since there is not enough to satisfy everyone’s demands.
Labor
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All the productivity and work provided by human beings that results in monetary compensation is what constitutes labor. This includes the thousands of different abilities and skills required to keep businesses running. Not all labor is the same quality: some workers are more productive because of increased natural skill, education or training. Homemakers, gardeners and other uncompensated laborers produce goods without being paid, so their labor is not included.
Entrepreneurs
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Entrepreneurs organize other productive resources to make goods and services with an element of risk. Some economists label entrepreneurs as a special source of labor input, but others think they deserve to be a separate production factor. The quality of entrepreneurship is directly related to the success or failure of a business.
Wealth
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When human labor turns natural resources into goods that satisfy human desires and have exchange value, those goods are called wealth. When labor satisfies a desire directly, without a material product, it’s called a service. Economists say that labor provides the economy with goods and services that produce wealth.
Capital
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Wealth, when used to produce more wealth, becomes capital. More that just money, capital includes machinery, infrastructure like roads and bridges, factories, schools and office buildings that humans design and construct to produce other goods and services. The modern industrial economy requires a large amount of capital that is continually increasing, improving and renewing its ability to produce
Economists call factories, office buildings and machinery produce by business and industry, “fixed capital.” Social capital derives from government investment in schools, universities and the infrastructure network. Working capital refers to stocks of finished or unfinished goods produced for consumption or made into consumer goods in the near future.
References
Writer Bio
Dana Griffin has written for a number of guides, trade and travel periodicals since 1999. She has also been published in "The Branson Insider" newspaper. Griffin is a CPR/first-aid instructor trainer for the American Red Cross, owns a business and continues to write for publications. She received a Bachelor of Arts in English composition from Vanguard University.
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