FACTORS OF

PRODUCTION
Sam D. Fuego
Social Sciences Department
School of Liberal Arts
Ateneo de Zamboanga University

Factors of Production or
Economic Resources

The things which are needed to carry on

the production of goods and services are
called economic resources or factors of
production.
These resources are:
Land (L)
Labor (l)
Capital (K)
Entrepreneur ()

Land (L)

Strictly speaking, land refers to all natural

resources, which are given by and found in
nature, and are, therefore, not man made.
This term includes the soil, rivers, forests, and
mineral deposits.
Land is an economic good because it is scarce
and a price has to be paid for it.
Thus, people who own land and offer it to others
for their use, earn an income called rent.
The less the supply of land available for mans
use, the higher is the rent that has to be paid for
it.

Labor (l)

It is any form of human effort exerted in

the production of goods and services.
It includes factory workers who are
engaged in manual work.
It also includes the accountant,
economist, nurse, typist or encoder, and
other numerous people who leave their
homes in the morning to be in time for
their 8-hour work.

Cont. (l)

The supply of labor in a country is dependent

on its population and on the percentage of this
population that is willing to join the labor force.
A country with a high population growth rate is
expected to come up with a bigger labor supply.
Anybody who expends his efforts in the
production of goods and services earns an
income.
Wages, which are the return on the use of labor,
include salaries, commissions, tips, and other
forms of remuneration.

Capital (K)

It refers to man-made goods used in the

production of goods and services.
Capital does not only include money, it also
includes buildings, machinery, raw materials,
and other physical necessities for use in
production.
A nations capital is dependent on its level of
savings. Savings refer to the part of persons
income which is not spent on consumption.
The owner of capital earns income for its use.
This income is called interest.

Entrepreneur ()

He is the person who combines the other economic

resources for use in the production of goods and
services.
He decides on the combination of land, labor and
capital to be used in production.
Since not everybody has the managerial and
organizational ability to be an entrepreneur,
entrepreneurship is an economic good that commands
a price.
This price is the income earned by the entrepreneur
and is called profit.
It is the amount that is left behind after all allocations
to the other economic resources have been made.

END