Land, labour, capital and enterprise
Production requires inputs called factors of production. The four main factors are:
- 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.
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.
| 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.
