Factors of production are resources necessary to produce goods and services.
There are four factors of production. The factors of production include natural resources, labor, capital, and entrepreneur. These factors of production are very important to our economy. Firstly, natural resources are “gifts of nature” that make production possible. One example of a natural resource is a tree to produce paper. Natural resources include actual surface land and water. They also include fish, animals, forests, and mineral deposits.
Secondly, labor is the human effort directed toward producing goods and services. An example of labor is a factory worker. Labor includes anyone who works and produces goods, and services. Basically, labor can also be known as “human resources”. Thirdly, capital is previously manufactured goods used to make other goods and services. An excellent example of a capital good is a hammer. Capital is the result of production. Capital goods cannot be found as a part of the natural Earth itself.
Someone else must manufacture them first before they can be put to use by creating other goods and services. Capital goods differ from consumer goods. Consumer goods directly satisfy wants, while capital goods satisfy wants indirectly by aiding production of consumer goods. Some more excellent examples of capital goods are the machines, tools, and buildings used to assemble automobiles. As you can see, none of these examples are natural. Instead they are industrial. If they were to be natural, each of these examples would have to be classified as a natural resource.
Lastly, entrepreneurs are individuals who start a new business, introduce a new product, and improve a management technique. For example, an entrepreneur can be the owner and operator of their own hair care business. Being an entrepreneur involves being innovative, or original. Entrepreneurs must be willing to take risks in order to make profits and to combine the four factors of production. In conclusion, all of these factors of production are crucial and vital parts of our economy. Without them, producing goods and services would be impossible.
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