Factors of production
The resources used to produce goods and services.
Last updated
Alexander Hamilton Church · Public domain
Factors of production are the inputs used to produce goods and services, with the quantity of output determined by a production function.[1] Primary factors—land, labour, and capital—facilitate production without becoming part of the product or being significantly transformed.[2] Land, labour, capital, and entrepreneurship are the four basic resources or factors of production.[1][3]
Key facts and history
Adam Smith and David Ricardo focused on physical resources and discussed distribution of cost and value among factors.[4] Adam Smith and David Ricardo described the "component parts of price" as the costs of using land or natural resources.[4] Classical economists used the term "capital" to refer to money, but money was not classified as a factor of production because it does not directly produce any good.[5] During the first half of the 20th century, entrepreneurship or organization was added as a fourth factor by some writers, and this became standard practice in the post-war Neoclassical synthesis.[6]
Reiner Kümmel assessed energy (exergy) as a production factor and demonstrated that its elasticity can exceed that of labor.[7]
What the cited sources add
The Finance Reference glossary states that factors of production include land, labor, capital, and entrepreneurship, and that knowledge has recently been discussed as a potential new factor.[3] The same source notes that land represents all natural resources, such as timber and gold, used in production.[3] The entrepreneur is described as the individual who combines all other factors of production to make an economic profit.[3] The Finance Reference glossary also states that an entrepreneur assumes risk for an idea's success or failure.[3]
References
- Wikipedia, "Factors of production" (CC BY-SA 4.0), which cites: Deakin, "Addressing Labour Market Segmentation: the Role of Labour Law", University of Cambridge Centre for Business Research Judge Business School, December 2013; "Factors Of Production", Finance Reference, 18 February 2021 (we also read that source) en.wikipedia.org
- Wikipedia, "Factors of production" (CC BY-SA 4.0), which cites: Paul A. Samuelson and William D. Nordhaus (2004). Economics, 18th ed., "Factors of production", "Capital", Human capital", and "Land" under Glossary of Terms.; O'Sullivan, "Economics: Principles in Action", Pearson Prentice Hall, 2003, p. 4; "Macroeconomía", Addison Wesley, 1999, p. 160; Milton Friedman, "Price Theory", Transaction Publishers, 2007, p. 201 (we also read that source) en.wikipedia.org
- "Factors Of Production", Finance Reference, 18 February 2021. facts only, no text reused. financereference.com
- Wikipedia, "Factors of production" (CC BY-SA 4.0), which cites: Adam Smith (1776), The Wealth of Nations, B.I, Ch. 6, Of the Component Parts of the Price of Commodities in paragraph I.6.9. (original not read by us) en.wikipedia.org
- Wikipedia, "Factors of production" (CC BY-SA 4.0), which cites: Benchimol, J., 2015, Money in the production function: a new Keynesian DSGE perspective, Southern Economic Journal, Volume 82, Issue 1, pp. 152–184. (original not read by us) en.wikipedia.org
- Wikipedia, "Factors of production" (CC BY-SA 4.0), which cites: "Agents of production", 1930, p. 346 (original not read by us) en.wikipedia.org
- Wikipedia, "Factors of production" (CC BY-SA 4.0), which cites: Kümmel, "The Productive Power of Energy and its Taxation", 4th European Congress Economics and Management of Energy in Industry, Porto, Portugal, 27-30, November, 2007; "Cointegration of Output, Capital, Labor, and Energy", European Physical Journal B, 2008, p. 279–287; Ayres, "Exergy, power and work in the US economy, 1900–1998", Energy, 2003, p. 219–273 (original not read by us) en.wikipedia.org
Each numbered sentence above was checked against the source it cites before publication. Sentences citing Wikipedia adapt text from the English Wikipedia article Factors of production (contributors), used under CC BY-SA 4.0; this entry is available under the same licence. Other sources were used for facts only; no text or images are copied from them.
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Sources
Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.
- Wikipedia: Factors of production (CC BY-SA 4.0).
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