Presentation on theme: "Factors of Production The Factors of Production are also known as “the productive resources”"— Presentation transcript:
Factors of Production The Factors of Production are also known as “the productive resources”
To produce any product… Certain factors must be used in the proper way. Land Labor Capital Management or Entrepreneurability
Land Land, as a factor of production, refers to the natural resources used in the creation of a product. Land refers to naturally occurring goods such as soil and minerals. (Note: real estate is usually “capital”)
Labor Human mental and physical effort used in production.
Capital Refers to man-made goods (or services) that are used in the production of the product, but do not become part of the product. The correct term is Real Capital or “Physical Capital”, as opposed to “Money Capital” which is the more normal use of the term, referring to money used in the production of products.
Management Refers to the person or persons who takes the risk to put a product into production. What risk, you say? The risk of investing funds or time in production of something that may not sell or may not be useful. Management was not one of the original factors, but is often included today. Also known as Entrepreneurability.
These were codified originally in the analyses of Adam Smith, 1776, David Ricardo, 1817, and the later contributions of John Stuart Mill as part of one of the first coherent theories of production.Adam SmithDavid RicardoJohn Stuart Mill
In the classical analysis, capital was generally viewed as being physical items such as tools and machinery. More modern analysis often distinguishes this physical capital from other forms of capital such as human capital. Some economists mention enterprise, individual capital or just "leadership" as a fourth factor.physical capitalhuman capitalindividual capital