What are 4 factors of production?

What are the two types of resources?

The resources (inputs) used to produce final products (outputs) are called factors of production.

In the economic sense, factors of production can be defined as the inputs used to produce goods or services with the aim of making an economic profit.


Although entrepreneurship is not part of the classical factors of production, it is often added to the list as a fourth factor. The reason for this is that entrepreneurship often leads to innovation, new processes, or new products. Therefore, it can increase production efficiency and act as a production factor.

The four factors of production describe all the inputs or resources used in the production of goods and services. Classic factors include land, labor and capital. Land (that is, natural resources) describes all the natural resources (such as soil, water, and air) that can be used in the production process. Labor refers to the human effort used to create goods and services. Capital describes all man-made goods that are used in the production process. Last but not least, some economists argue that entrepreneurship should also be considered as a factor of production as it leads to innovation and thus increases production efficiency.


Earth includes all renewable and non-renewable natural resources used in production, such as timber, water, rivers, fish, seafood, diamonds, hydrogen, crude oil, minerals and metal ores, forests and the natural land itself (fertile soil).

Both the physical and mental efforts of persons in the production of goods or services. Manual and skilled labor make up the company’s workforce. Labor is also called labor force or people. Labor wages (full-time workers who receive wages are considered a fixed cost) or wages (part-time workers who receive wages are considered a variable cost) are paid for their services rendered to the company. Each worker has unique knowledge, personality, skills and experience. Staff quality is usually achieved through training and education.


Workers’ compensation takes many forms. These can be wages, salaries and benefits such as insurance and pension. Wages usually refer to the compensation of manual laborers, as they are paid on an hourly basis. Meanwhile, salary refers to compensation of a fixed amount, usually paid monthly. If the wages received by the workers depend on their total hours worked, then it is not a salary. However, in economics we call it all wages, i.e. compensation for the mental and physical effort of the worker invested in the production process.

Interest is compensation for principal. Capital is a man-made tool to help convert inputs into outputs. They include machinery, buildings, equipment and vehicles. Sometimes we call them capital goods.

Land/Natural Resources

“Land” is a fairly broad category as a factor of production because it refers to all natural resources. These resources are gifts from nature. Some typical examples of natural resources are water, oil, copper, natural gas, coal, and forests. These can range from land used for farming to that used for commercial real estate, as well as natural resources derived from the land.

These resources can be renewable, such as forests, or non-renewable, such as oil or natural gas. Income earned from land or other natural resources is called rent. Although land is undoubtedly essential to most forms of production, how much it matters depends on the industry. For example, land is the main focus of almost all farming, but it is much less important for a technology company that actually operates in the virtual realm. (texajp_7)

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