Factors
of Production
Key Terms
ü capital: anything that is used to produce goods and services
ü entrepreneur: a person who decides how to combine resources
to create new goods and services
ü factors of production: resources needed to produce goods and
services
ü goods: physical items
ü labor: the work people are paid to do to produce goods and
services
ü labor force: all the people who work for money
ü land: all of the natural resources that are used to produce
goods
ü services: actions one person does for another person
Let's Practice
Factors of Production
How are the things we want and need to be produced?
In this unit, you will learn about the resources needed to produce what people
want and need.
The things people want and need can be
classified into goods and services.
·
Goods are physical items, like clothing.
·
Services are actions one person does for another, like
changing a car's oil.
Goods and services are produced using
resources. The resources needed to produce goods and services are called the factors
of production.
1.
Land
2.
Labor
3.
Capital
4.
Entrepreneurs
Land
When economists say "land," they are not just talking about the ground people walk
on. Economists say that land is an all-natural resource used to produce goods.
Natural resources are things that are found in nature, like farmland. Things
found in or on the land, like crops, mineral deposits, and water, are natural
resources.
Labor
The second factor of production is labor. Labor is the work people are paid
to produce goods and services. The labor force is made up of all the people who
work for money. It includes jobs in which people produce goods, such as
assembly-line workers building a car. It also includes jobs where people
perform services, such as a doctor treating a patient.
Capital
Capital is the third factor of production. Capital is anything that is used to
produce goods and services. Tools, machines, and factories are all examples of
capital. Another type of capital is money. Money is used to buy the tools and
equipment needed for production.
Entrepreneurs
Entrepreneurs make up the fourth factor of
production. Entrepreneurs decide how
to combine resources to create new goods and services. These leaders bring
together land, labor, and capital to start businesses. Entrepreneurs are
important because they develop new ideas for goods and services and organize production.
They make the decisions that are needed to produce goods and services. Bill
Gates, the leader of Microsoft, is an entrepreneur. The owner of a small
family-owned restaurant is also an entrepreneur.
When an entrepreneur organizes land, labor, and
capital, production can take place.