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Factors of production
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To produce anything, a business needs four kinds of resources. How it combines them changes over time.
The four factors
Land: natural resources, such as land, water, minerals and oil.
Labour: human effort, physical and mental.
Capital: man-made resources used to make goods, such as machinery, tools and buildings.
Enterprise: the entrepreneur who organises the other factors and takes the risks.
Labour: human effort, physical and mental.
Capital: man-made resources used to make goods, such as machinery, tools and buildings.
Enterprise: the entrepreneur who organises the other factors and takes the risks.
Changing combinations
Businesses often replace labour with capital as technology improves, such as self-service checkouts or robots.
This can lower costs and raise productivity but may reduce jobs.
The best mix depends on the cost of labour and capital and the type of product.
This can lower costs and raise productivity but may reduce jobs.
The best mix depends on the cost of labour and capital and the type of product.
Capital or labour intensive?
Capital-intensive production relies mostly on machinery. Labour-intensive production relies mostly on workers.
Countries with cheap labour often have more labour-intensive industries.
Countries with cheap labour often have more labour-intensive industries.
Classify: a delivery van, a farmer's field, a chef, the owner who opens the restaurant.
- Van: man-made, used in production: capital.
- Field: natural resource: land.
- Chef: human effort: labour.
- Owner: organises and takes risks: enterprise.
Answer: Capital, land, labour, enterprise
Land (natural resources), labour (human effort), capital (man-made equipment) and enterprise (organising and risk-taking). Businesses increasingly swap labour for capital as technology improves.
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