BEE Grade 7

Unit 3: Factors of production

Factors of production continued…

1. Land
Land refers to the natural resources or free gifts of nature used in the production of goods
and services.
For e.g., water, tree or sunlight.
Land or natural resources can be classified into renewable and non-renewable resources.
1. Renewable resources are resources which are replaced by nature. For e.g., rain, sun
and trees.
2. Non-renewable resources are resources which are not easily replaced by nature. For
e.g., oil, gas and diamonds.

2. Labour
Labour refers to workers who provide their physical and mental efforts to produce goods
and services.
For e.g., teacher, carpenter, farmer or factory workers.

3. Capital
Capital refers to man-made resources used in the production of final goods and services.
Final good is a good ready for consumption.
Capital in an enterprise is categorized into Two segment:
I. Financial capital is money used to buy tools and equipment in the business.
II. Non-financial capital are other man-made resources required to produce output.
For e.g., machineries, office buildings or equipment.

4. Enterprise
Enterprise as a factor of production combines land, labour and capital to produce goods and
services with the aim of making profits. Example of an entrepreneur is a shopkeeper or
owner of a business.
➢ Profit occurs when revenues are greater than costs. It is calculated as follows:
Profit = Revenue – Cost

➢ Loss occurs when costs are higher than revenue

BEE Grade 7
Unit 3: Factors of production
Rewards of factors of production
Each factor of production earns a reward for its contribution in the production of goods and
services.
1. Land earns rent
2. Labour earns wages for the efforts provided by workers.
3. Capital earns interest for the use of man-made resources.
4. Enterprise earns profits for taking risks and assuming responsibilities of the business.

Land Rent
Labour Wages
Capital Interest
Enterprise Profit

The production process

The production process refers to steps involved in converting factor inputs into output.
Inputs: These are the factors of production needed to produce goods and services.
Process: The way in which the inputs will be converted to outputs.
Output: The final goods and services produced for consumption.