Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Factors of Production

What it is:

In economics, the term factors of production refers to land, labor, and capital: the three inputs that make all commerce possible. Some economists also include entrepreneurship a factor of production.

How it works (Example):

Without land, labor and capital, it's virtually impossible to create goods and services. Land, for example, provides raw materials such as lumber, minerals and metals. Labor represents the people and skills necessary to manipulate, process, distribute, market and handle raw materials as well as finished goods and services. Capital represents the money necessary to fund new ventures, as well as pay for land and labor. It also increases labor's ability to produce wealth.

Why it Matters:

The foundation of most economic theories rests on opinions about the proper distribution of wealth among the holders of land, labor, capital, and in some cases, entrepreneurship. All the factors of production depend on each other for the creation of goods and services.