- Factors of production
- Factors of production are the inputs, grouped as land, labour, capital and enterprise, that a firm combines to produce goods and services.
- Financial capital
- Financial capital is money raised through loans and equity investments, which pays for inputs and produces nothing by itself.
The four factors of production
Can you name the four factors of production?
Every input a firm uses falls into one of these, and each factor earns its own reward.
Land is natural resources, meaning land itself and raw materials such as water, timber and gas, and its reward is rent.
Can you think of an example?
At a bakery in Leeds, the water in the dough and the gas that fires the oven are land. On a farm, the fields the wheat grows in are land too.
Labour is human effort, both physical and mental, used in production, and its reward is wages and salaries.
Can you think of an example?
The bakers who knead the dough and know how long each loaf needs are labour. So is the person on the counter who takes the orders and the payment.
Capital is physical capital, the machines, equipment and buildings used to produce the product, and its reward is interest.
Can you think of an example?
The oven, the mixer and the shop the bakery works from are its capital. Each was made to help produce bread, and each is used again day after day.
Enterprise is the entrepreneur, the person who creates the business and combines the other inputs, and its reward is profit for taking the risk.
Can you think of an example?
The bakery's owner chose to open it, decided how many bakers to hire and which oven to buy, and stands to lose her savings if it fails. Whatever is left after paying for every other input is her profit.