Capital

Date: 2015-10-07; view: 572.

Labour

Land

As an economic term,land refers to natural resources present without human intervention. "Land" includes actual surface land and water, as well as fish, animals, forests, mineral deposits, and other gifts of nature."

The work people do is labour—which is often called a human source. Labor includes anyone who works to produce goods and services. As you know, economicgoods are tangible items that people buy, such as pharmaceuticals, shampoo, or computers.Services are activities done for others for a fee. Doctors, hair stylists and Web-page designers all sell their services.

Another factor of production is capital-the manufactured goods used to make other goods and services. The machines, buildings, and tools used to assemble automobiles, for example, are capital goods. The newly assembled goods are not considered capital unless they, in turn, produce other goods and services,such as an automobile performing services as a taxicab.

When capital is combined with land and labour, the value of all three factors of production increases. Think about the following situation. If you combine an uncut diamond (land), a diamond cutter (labour), and a diamond-cutting machine (capital), you end up with a highly valued gem.

Capital also increasesproductivity—the ability to produce greater quantities of goods and services in better and faster ways. Consider how much faster a mechanical reaper—a capital good-can harvest grain than a person clearing the field with a scythe.

Entrepreneurship. The fourth factor of production is entrepreneurship. This refers to the ability of individuals to start new businesses, to introduce new products and processes, and to improve management techniques. Entrepreneurship involves ini­tiative and willingness to take risks in order to reap profits.

Entrepreneurs must also incur the costs of failed efforts. About 30 percent of new business enterprises fail. Of the 70 percent that do survive, only a few become wildly successful businesses such as Microsoft, The Limited, or Blockbuster Video.

Technology Some economists add technology to the list of factors of production. In the past,technology included any use of land, labour, and capital that produced goods and services more.