The resources used to produce a final product are called inputs, and the final products are called outputs. Both the inputs and the outputs are together known as the factors of production. From an economic perspective, factors of production are the inputs used to produce goods or services with the aim of generating profits. The factors of production include resources such as land, labor, capital, and entrepreneur.
Land refers to all the natural resources found on earth. Examples include water and rivers. Some of these resources are renewable while others are non-renewable. Renewable resources are those that can be easily replaced, by either man or nature. Non-renewable resources are ones that cannot be replaced at all. For instance, our family does farming. For us to produce wheat, we use natural resources such as land and water.
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The second factor of production, labor, refers to the human efforts done physically or mentally to earn income. Therefore, labor is the mental or physical effort done by human being in the production process. People who put in their effort are compensated wages for the work done. Using the farming example, our family has employed some professionals to work in various departments.
Capital refers to the money, equipment, machinery, and buildings used to produce goods and services. An increase in capital means an increase in the productive capacity of a business. Capital used in our farming business includes trucks, a factory, and machines.
In production, the entrepreneur is the risk taker. This individual organizes the other production factors and suffers all the uncertainties and risks involved in producing goods or services. This individual employs the other three factors, brings them together and coordinates them to generate the maximum profit. For instance, my father who takes the risk of producing wheat is called an entrepreneur. He acts as the boss and decides how the business should be run.
