In economics, factors of production (or productive inputs or resources) are any commodities or services used to produce goods and services. 'Factors of production' may also refer specifically to the primary factors, which are stocks including land, labor (the ability to work), and capital goods applied to production. The primary factors facilitate production but neither become part of the product (as with raw materials) nor become significantly transformed by the production process (as with fuel used to power machinery). 'Land' includes not only the site of production but natural resources above or below the soil. Recent usage has distinguished human capital (the stock of knowledge in the labor force from formal education and job training as part of labor, and sometimes entrepreneurship). Sometimes the overall state of technology is described as a factor of production. The number and definition of factors varies, depending on theoretical purpose, empirical emphasis, or school of economics. The primary factors facilitate production but neither become part of the product (as with raw materials) nor become significantly transformed by the production process (as with fuel used to power machinery).
Factors of production arc resources used by firms as inputs for a good or service to be produced. Factors of production are as follows: capital, labour, and natural resources.
In economic theory, the term "capital" refers to goods and money used to produce more goods and money. Classifications of capital vary with the purpose of the classification. The most general distinction is the one made between physical, financial, and human capital.
Physical capital is land, buildings, equipment, raw materials; bonds, stocks, available bank balances are included in the financial capital. They both make great contribution to production.
To group capital into fixed capital and circulating capital is common practice. The former refers to means of production such as land, buildings, machinery and various equipment. They are durable, that is, they participate in the production process over several years. Circulating capital includes both ion-renewable goods, such as raw materials and fuel, and the funds required o pay wages and other claims against the enterprise. Non-renewable goods TC used up in one production cycle and their value is fully transferred to the final product.
Human capital is knowledge that contributes "know-how" to production. It is increased by research and disseminated through education. Investment n human capital results in new, technically improved, products and production processes which improve economic efficiency. Like physical capital, human capital is important enough to be an indicator of economic development of a nation.
Land is defined as everything in the universe that is not created by human beings. It includes more than the mere surface of the earth. Air, sunlight, forests, earth, water and minerals are all classified as land, as are all manner of natural forces or opportunities that are not created by people. Labor uses capital on land to produce wealth. Every tangible good is made up of the raw materials that come from nature -- and because all people (and other living things) have material needs for survival, everyone must have access to some land in order to live.
Land is the passive factor in production. As such, land simply exists. To make the gifts of nature satisfy our needs and desires, human beings must do something with the natural resources; they must exert themselves, and this human exertion in production is called labor. Everything that people do, to convert natural opportunities into human satisfactions -- whether it involves the exertion of brawn, or brains, or both – is labor, to the economist.
When the stuff of nature is worked up by labor into tangible goods, which satisfy human desires and have exchange value, we call those goods Wealth. (When labor satisfy desires directly, without providing a material good, we call that "Services"; thus, economists say that labor provides the economy with "goods and services".) When some of the wealth is used to produce more wealth, economists refer to it as Capital. A hammer, a screwdriver, and a saw are used by a carpenter to make a table. The table has exchange value. The truck which delivers the table to a retail store, the hammer and other tools -- and even the cash register – are all forms of capital.
Capital increases labor's ability to produce wealth (and services too). Therefore, there is always a demand for capital goods, and some labor will be devoted to supplying those goods, rather than supplying the consumer goods that directly satisfy desires.
It is common, in economics, to understand labour as an effort needed to satisfy human needs. It is one of the three leading elements of production. Labour has a variety of functions: production of raw materials, manufacturing of final products, transferring things from one place to another, management of production, and services like the ones rendered by physicians and teachers.
One can classify labour into productive and unproductive. The former produces physical objects having utility. The latter is useful but does not produce material wealth. Labour of the musician is an example.
Unlike other factors of production, for example capital, once workers are employed, their efficiency can vary greatly with organization of work and their motivation.
Demand for labour is influenced by the demand for goods produced by workers, the proportion of wages in total production costs, etc. The supply of labour depends upon the size of population, geographic mobility, skills, education level (human capital), etc. Workers supply labour either individually or through trade unions. If demand for and supply of labour are not in equilibrium, there is unemployment. The rate of unemployment is a percentage of the total labour force without a job. It is desirable for an economy to have the lowest possible unemployment rate and to achieve higher employment as neither full use of resources nor maximum level of output can be achieved in an economy having unemployment.
Factors of production are combined together in different proportions in order to produce output. It is assumed in economics that one should choose the combination of factors which minimizes the cost of production and increases profits.
The returns, or payments, to capital and labor move naturally toward an equilibrium, or balance, in which neither factor has an advantage over the other. If a shortage of capital goods develops, people will be willing to pay higher prices for those goods, and more workers will work on making them. In time, this will create a shortage of consumer goods, and workers will be drawn back toward making them.
Likewise, when there's more demand for land, the land factories gear up and crank out more land -- or, well, they can't do that, can they? That is why land must be defined as a distinct factor of production. Since land is needed for all production, any time overall production is increasing, land will be in greater demand. When capital goods are in greater demand, labor will eagerly produce more of them. But, the supply of land cannot be increased, because land is not produced by human labor.
Definition of the three distinct, interdependent factors of production is another important analytical tool that helps economists make sense of the processes of production and distribution in a complex society. Each is clearly different from the other.. The mutually exclusive nature of these categories is what makes them so useful.
In other contexts, these terms are sometimes used differently, or oddly combined, such as "human capital". It is important to remember that different schemes of definitions and terms can be used for different purposes. Land, for example, is often referred to as "capital", in the sense that one can buy land and use it as a "capital investment". The use of a term like "real estate" -- which is a combination of land and capital as we have defined them here -- can further cloud the issue. This shows us that when economic terms are used, it is very helpful to clearly understand how they are being defined!
Developments and Alternative views
Differences are most stark when it comes to deciding which factor is the most important. For example, in the Austrian view—often shared by neoclassical and other "free market" economists—the primary factor of production is the time of the entrepreneur, which, when combined with other factors, determines the amount of output of a particular good or service. However, other authors argue that "entrepreneurship" is nothing but a specific kind of labor or human capital and should not be treated separately.
Marxist and socialist economists also employ the concept of factors of production. But they tend to treat labour very differently from the other factors, seeing it as the conscious and active input which converts physical raw materials and other inputs into use-values wanted by consumers and businesses. Their analysis does not substantially alter the idea of factors of production, although it puts special emphasis on means of production, defined as the factors minus labor, which it sought to differentiate from human factors. Further, Marxian political economy differentiates between the transhistorical concepts of the "factors of production" and the role that these play under capitalism: in that socio-economic system, labor becomes " variable capital" seen as the source of surplus-value or profits, while the non-human means of production become " constant capital" which does not contribute to surplus-value except indirectly, by making labor more productive.
Others focus on the central role of human capital, in particular the social capital (community trust) and instructional capital (actual worker's skills and instructions) that became increasingly important through the 20th century.
Most modern analyses usually cite four to seven types of capital, as in Natural Capitalism or the theories of intellectual capital. Brands have also been considered "brand capital", a special form of intangible firm-specific social capital distinct from that inherited from the larger society, in the analysis of Baruch Lev.
The Marxian school goes further, seeing labor (in general, including entrepreneurship) as the primary factor of production, since it is required to produce capital goods and to utilize the gifts of nature. But this debate is more about basic economic theory (the role of the factors in the economy) than it is about the definition of the factors of production.
Summary
Factors of production arc resources used by firms as inputs for a good or service to be produced. Factors of production are as follows: capital, labour, and natural resources.
In economic theory, the term "capital" refers to goods and money used to produce more goods and money. The most general distinction is the one made between physical, financial, and human capital.
Land is defined as everything in the universe that is not created by human beings. It includes more than the mere surface of the earth. Air, sunlight, forests, earth, water and minerals are all classified as land, as are all manner of natural forces or opportunities that are not created by people. Land is the passive factor in production, as land simply exists.
Labour, one of the three leading elements of production, has a variety of functions: production of raw materials, manufacturing of final products, transferring things from one place to another, management of production, and services like the ones rendered by physicians and teachers.
There is an interdependance of the three factors of production: since land is needed for all production, any time overall production is increasing, land will be in greater demand. When capital goods are in greater demand, labor will eagerly produce more of them. But, the supply of land cannot be increased, because land is not produced by human labor.
There are some others point of view on factors of production: neoclassical and other "free market" economists—the primary factor of production is the time of the entrepreneur, which, when combined with other factors, determines the amount of output of a particular good or service. Marxist and socialist treat labour very differently from the other factors, seeing it as the conscious and active input which converts physical raw materials and other inputs into use-values wanted by consumers and businesses.
Terms
Factors of production arc resources used by firms as inputs for a good or service to be produced. Factors of production are as follows: capital, labour, and natural resources.
Capital is goods and money used to produce more goods and money
Physical capital is land, buildings, equipment, raw materials; bonds, stocks, available bank balances are included in the financial capital.
Human capital is knowledge that contributes "know-how" to production.
Land is defined as everything in the universe that is not created by human beings. It includes air, sunlight, forests, earth, water and minerals are all classified as land, as are all manner of natural forces or opportunities that are not created by people.
Labour is human activity needed to satisfy human needs.
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by income-constrained firms employing available information and factors of production, in accordance with rational choice theory.
Free market is a market in which there is no economic intervention and regulation by the state, except to enforce private contracts and the ownership of property.
Variable capital in Marxian political economy is one of the two forms that capital adopts in the workplace, in contrast to variable capital. It is typically conceived of as plant and machinery -- the fixed investments made by a capitalist entrepreneur (or industrial capitalist), with which employees (the variable capital) produce commodities. The two forms are distinguished by their role in (social) value relationships.
В экономике, факторы производства (или производительные вложения или ресурсы) - любые товары, или услуги, которые производять товары и услуги. 'Факторы производства' могут также обращаться в частности к первичным факторам, которые являются акциями, включая землю, рабочей силой (способность работать), и основные фонды обращенные к производству. Первичные факторы облегчают производство, но не становятся частью продукта, который производиться (как с сырьем), ни значительно преобразовуютсяв процессе производства (как с топливом, используемым для машинной энергии). 'Земля' включает не только место производства, но и природные ресурсы наземные или подземные. Недавнее использование отличило человеческий капитал (запас знания в рабочей силе от систематического образования и работы, обучающейся как часть рабочей силы, и иногда предпринимательство). Иногда полная характеристика технологий описана как фактор производства. Число и определение факторов изменяются, в зависимости от теоретической цели, эмпирического акцента, или школы экономики.
Факторы производства это ресурсы, используемые фирмами как основа для товаров или обслуживания, которое будет произведено. Факторы производства следующие: капитал, труд, и природные ресурсы.
В экономической теории, термин " капитал " обращен к товарам, и деньгам, которые могут производить больше товаров и денег. Классификации капитала изменяются с целью классификации. Самое общее различие - это, сделанное между физическим, финансовым, и человеческим капиталом.