Land, labour, capital and enterprise
Production requires inputs called factors of production. The four main factors are land, labour, capital and enterprise. These are the resources used to produce all goods and services in an economy.
Land
All natural resources such as land itself, minerals, water and forests.
Labour
Human effort in production, both physical and mental.
Capital
Man-made resources used to produce other goods and services, such as machinery and buildings.
Enterprise
The ability to organise the other factors, take risks and make decisions.
Entrepreneurs coordinate resources and bear the risk of production. Without enterprise, the other factors may not be combined effectively.
Rewards and mobility
Each factor receives a reward: land earns rent, labour earns wages, capital earns interest and enterprise earns profit. Factors of production may be geographically mobile (able to move to different locations) and/or occupationally mobile (able to switch between uses). Training, education and infrastructure can improve mobility.
Easy meanings
- Geographical mobility means a factor can move from one place to another.
- Occupational mobility means a factor can change from one use or job to another.
- Example: a worker moving from one city to another shows geographical mobility, while retraining from factory work to IT shows occupational mobility.
| Factor | Definition | Reward | Example |
|---|---|---|---|
| Land | Natural resources used in production | Rent | Farmland, minerals, forests |
| Labour | Human effort in production | Wages & salaries | Factory worker, teacher, engineer |
| Capital | Man-made goods used to produce other goods | Interest | Machinery, computers, vehicles |
| Enterprise | The ability to organise the other factors and take risks | Profit | Entrepreneur running a business |
Changes in the quantity or quality of factors arise from technological advances, education, healthcare, migration and government policies. For example, improved education and training increase labour quality while new technology boosts capital productivity. Net immigration can raise the supply of labour, whereas natural disasters can reduce the supply of land resources.
