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Identify and explain the factor of production?

Identify and explain the factor of production?

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Answers (3)

Gaby
2 months ago
The modern definition of factors of
production is primarily derived from a
neoclassical view of economics. It
amalgamates past approaches to economic
theory, such as the concept of labor as a
factor of production from socialism, into a
single definition.
Land, labor, and capital as factors of
production were originally identified by the
early political economists such as Adam
Smith, David Ricardo, and Karl Marx. Today,
capital and labor remain the two primary
inputs for the productive processes and the
generation of profits by a business.
Production, such as in manufacturing, can
be tracked by certain indexes, including the
ISM Manufacturing Index.
Land as a Factor
Land has a broad definition as a factor of
production and can take on various forms,
from agricultural land to commercial real
estate to the resources available from a
particular piece of land. Natural resources,
such as oil and gold, can be extracted and
refined for human consumption from the
land. Cultivation of crops on land by farmers
increases its value and utility. For a group of
early French economists called the
physiocrats who pre-dated the classical
political economists, the land was
responsible for generating economic value.
While the land is an essential component of
most ventures, its importance can diminish
or increase based on industry. For example,
a technology company can easily begin
operations with zero investment in land. On
the other hand, the land is the most
significant investment for a real estate
venture.
Labor as a Factor
Labor refers to the effort expended by an
individual to bring a product or service to
the market. Again, it can take on various
forms. For example, the construction
worker at a hotel site is part of labor as is
the waiter who serves guests or the
receptionist who enrolls them into the
hotel.
Within the software industry, labor refers to
the work done by project managers and
developers in building the final product.
Even an artist involved in making art,
whether it is a painting or a symphony, is
considered labor.
For the early political economists, labor was
the primary driver of economic value.
Production workers are paid for their time
and effort in wages that depend on their
skill and training. Labor by an uneducated
and untrained worker is typically paid at
low prices. Skilled and trained workers are
referred to as human capital and are paid
higher wages because they bring more
than their physical capacity to the task. For
example, an accountant’s job requires
synthesis and analysis of financial data for a
company. Countries that are rich in human
capital experience increased productivity
and efficiency.
The difference in skill levels and terminology
also helps companies and entrepreneurs
arbitrage corresponding disparities in pay
scales. This can result in a transformation of
factors of production for entire industries.
An example of this is the change in
production processes in the Information
Technology (IT) industry after jobs were
outsourced to countries with a trained
workforce and significantly lower salaries.
Capital as a Factor
In economics, capital typically refers to
money. But money is not a factor of
production because it is not directly
involved in producing a good or service.
Instead, it facilitates the processes used in
production by enabling entrepreneurs and
company owners to purchase capital goods
or land or pay wages. For modern
mainstream ( neoclassical) economists,
capital is the primary driver of value.
As a factor of production, capital refers to
the purchase of goods made with money in
production. For example, a tractor
purchased for farming is capital. Along the
same lines, desks and chairs used in an
office are also capital.
It is important to distinguish personal and
private capital in factors of production. A
personal vehicle used to transport family is
not considered a capital good. But a
commercial vehicle that is expressly used
for official purposes is considered a capital
good. During an economic contraction or
when they suffer losses, companies cut
back on capital expenditure to ensure
profits. During periods of economic
expansion, however, they invest in new
machinery and equipment to bring new
products to market.
An illustration of the above is the difference
in markets for robots in China versus the
United States after the financial crisis. China
experienced a multiyear growth cycle after
the crisis and its manufacturers invested in
robots to improve productivity at their
facilities and meet growing market
demands. As a result, the country became
the biggest market for robots.
Manufacturers within the United States,
which had been in the throes of an
economic recession after the financial crisis,
cut back on their investments related to
production due to tepid demand.
Entrepreneurship as a Factor
Entrepreneurship is the secret sauce that
combines all the other factors of production
into a product or service for the consumer
market. An example of entrepreneurship is
the evolution of social media behemoth
Facebook Inc. ( FB). Mark Zuckerberg
assumed the risk for the success or failure
of his social media network when he began
allocating time from his daily schedule
towards that activity. At the time that he
coded the minimum viable product himself,
Zuckerberg’s labor was the only factor of
production.
After Facebook became popular and spread
across campuses, Zuckerberg realized that
he needed help to build the product and,
along with co-founder Eduardo Saverin,
recruited additional employees. He hired
two people, an engineer (Dustin Moskovitz)
and a spokesperson (Chris Hughes), who
both allocated hours to the project,
meaning that their invested time became a
factor of production. The continued
popularity of the product meant that
Zuckerberg also had to scale technology
and operations. He raised venture capital
money to rent office space, hire more
employees, and purchase additional server
space for development.
At first, there was no need for land.
However, as business continued to grow,
Facebook built its own office space and
data centers. Each of these requires
significant real estate and capital
investments.
Another example of entrepreneurship is
Starbucks Corporation ( SBUX). The retail
coffee chain needs all four factors of
production: land (prime real estate in big
cities for its coffee chain), capital (large
machinery to produce and dispense coffee),
and labor (employees at its retail outposts
for service). The company’s founder
Howard Schulz was the first person to
realize that a market for such a chain
existed and figured out the connections
between the other three factors of
production.
While large companies make for excellent
examples, a majority of companies within
the United States are small businesses
started by entrepreneurs. Because
entrepreneurs are vital for economic
growth, countries are creating the
necessary framework and policies in order
to make it easier for them to start
companies.
Dende
2 months ago
The factors of production are resources that are the building blocks of the economy; they are what people use to produce goods and services. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship.

The first factor of production is land, but this includes any natural resource used to produce goods and services. This includes not just land, but anything that comes from the land. Some common land or natural resources are water, oil, copper, natural gas, coal, and forests. Land resources are the raw materials in the production process. These resources can be renewable, such as forests, or nonrenewable such as oil or natural gas. The income that resource owners earn in return for land resources is called rent.

The second factor of production is labor. Labor is the effort that people contribute to the production of goods and services. Labor resources include the work done by the waiter who brings your food at a local restaurant as well as the engineer who designed the bus that transports you to school. It includes an artist's creation of a painting as well as the work of the pilot flying the airplane overhead. If you have ever been paid for a job, you have contributed labor resources to the production of goods or services. The income earned by labor resources is called wages and is the largest source of income for most people.

The third factor of production is capital. Think of capital as the machinery, tools and buildings humans use to produce goods and services. Some common examples of capital include hammers, forklifts, conveyer belts, computers, and delivery vans. Capital differs based on the worker and the type of work being done. For example, a doctor may use a stethoscope and an examination room to provide medical services. Your teacher may use textbooks, desks, and a whiteboard to produce education services. The income earned by owners of capital resources is interest.

The fourth factor of production is entrepreneurship. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit. The most successful entrepreneurs are innovators who find new ways produce goods and services or who develop new goods and services to bring to market. Without the entrepreneur combining land, labor, and capital in new ways, many of the innovations we see around us would not exist. Think of the entrepreneurship of Henry Ford or Bill Gates. Entrepreneurs are a vital engine of economic growth helping to build some of the largest firms in the world as well as some of the small businesses in your neighborhood. Entrepreneurs thrive in economies where they have the freedom to start businesses and buy resources freely. The payment to entrepreneurship is profit.
The factors of production are resources that are
the building blocks of the economy; they are
what people use to produce goods and
services. Economists divide the factors of
production into four categories : land , labor,
capital, and entrepreneurship .
The first factor of production is land , but this
includes any natural resource used to produce
goods and services. This includes not just land ,
but anything that comes from the land . Some
common land or natural resources are water ,
oil , copper , natural gas, coal, and forests. Land
resources are the raw materials in the
production process . These resources can be
renewable, such as forests , or nonrenewable
such as oil or natural gas. The income that
resource owners earn in return for land
resources is called rent.
The second factor of production is labor. Labor
is the effort that people contribute to the
production of goods and services. Labor
resources include the work done by the waiter
who brings your food at a local restaurant as
well as the engineer who designed the bus that
transports you to school . It includes an artist' s
creation of a painting as well as the work of the
pilot flying the airplane overhead. If you have
ever been paid for a job , you have contributed
labor resources to the production of goods or
services. The income earned by labor resources
is called wages and is the largest source of
income for most people .
The third factor of production is capital. Think
of capital as the machinery , tools and buildings
humans use to produce goods and services.
Some common examples of capital include
hammers, forklifts , conveyer belts , computers,
and delivery vans . Capital differs based on the
worker and the type of work being done . For
example , a doctor may use a stethoscope and
an examination room to provide medical
services. Your teacher may use textbooks,
desks , and a whiteboard to produce education
services. The income earned by owners of
capital resources is interest .
The fourth factor of production is
entrepreneurship . An entrepreneur is a person
who combines the other factors of production -
land , labor, and capital - to earn a profit. The
most successful entrepreneurs are innovators
who find new ways produce goods and services
or who develop new goods and services to
bring to market . Without the entrepreneur
combining land , labor, and capital in new ways ,
many of the innovations we see around us
would not exist. Think of the entrepreneurship
of Henry Ford or Bill Gates . Entrepreneurs are a
vital engine of economic growth helping to build
some of the largest firms in the world as well
as some of the small businesses in your
neighborhood . Entrepreneurs thrive in economies
where they have the freedom to start
businesses and buy resources freely . The
payment to entrepreneurship is profit.
You will notice that I did not include money as
a factor of production. You might ask, isn ' t
money a type of capital? Money is not capital
as economists define capital because it is not a
productive resource . While money can be used
to buy capital , it is the capital good (things
such as machinery and tools ) that is used to
produce goods and services. When was the last
time you saw a carpenter pounding a nail with
a five dollar bill or a warehouse foreman lifting
a pallet with a 20 dollar bill? Money merely
facilitates trade, but it is not in itself a
productive resource .
Remember , goods and services are scarce
because the factors of production used to
produce them are scarce . In case you have
forgotten , scarcity is described as limited
quantities of resources to meet unlimited wants.
Consider a pair of denim blue jeans . The denim
is made of cotton , grown on the land . The land
and water used to grow the cotton is limited
and could have been used to grow a variety of
different crops . The workers who cut and
sewed the denim in the factory are limited
labor resources who could have been producing
other goods or services in the economy . The
machines and the factory used to produce the
jeans are limited capital resources that could
have been used to produce other goods . This
scarcity of resources means that producing
some goods and services leaves other goods
and services unproduced .
It' s time to test your knowledge with a little
game I like to call , Name That Resource . I will
say the name of an item and you will identify it
as one of the four possible resources that form
the factors of production: land , labor, capital ,
or entrepreneurship .
Coal . . . land
Forklift . . . capital
Factory. . . capital
Oil. . . land
Michael Dell. . . entrepreneur
It' s time to wrap things up , but before we go ,
always remember that the four factors of
production - land , labor, capital , and
entrepreneurship - are scarce resources that
form the building blocks of the economy .
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