Econ: Factors of Production

When economists talk about scarce resources, they are referring to the factors of production, or resources needed to produce goods and services. Economists have classified these productive resources as land, labor, capital, and entrepreneurship.

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.

Labor is the work that people do, which is often called human resources. Labor includes anyone who works to produce goods and services. Economic goods are tangible items that people buy, such as pharmaceuticals, shampoo, or computers. Services are activities done for others for a fee. Doctors, barbers, hair stylists, and web page designers all sell their services.

Capital is manufactured goods to produce other goods and services. The machines, buildings, and tools used to assemble automobiles are capital goods. The newly assembled goods are not considered capital unless they, in turn, produce other goods and services, such as automobiles performing services as a taxi cab. When capital is combined with land and labor, the value of all three factors of production increases. Capital also increases productivity, which is the ability to produce greater quantities of goods and services in better and faster ways.

Entrepreneurship 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 incur the costs of failed efforts.

Some economists add technology to the list of factors of production. Technology includes any use of land, labor, and capital that produced goods and services more efficiently.

2.2 Why Is What We Want Scarce (read pp.20-22)
2.3 How Do We Satisfy Economic Wants (read pp.22-26)


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