in Economics we categorise the resources available to us into four types. Th ese are known as factors of production:
1 LAND: This factor is the natural resource. It includes the surface of the earth, lakes, rivers and forests. It also includes mineral deposits below the earth and the climate above, as well as the small area of land that makes up a farm or factory. The reward for owning land is the income that is generated.
2 LABOUR: This factor is the human resource, the basic determinant of which is the nation’s population. Not all of the population is available to work, because some are above or below the working population age and some choose not to work. The reward for labour is the wage or salary that is paid.
3 CAPITAL: This factor is any man-made aid to production. In this category we would include a simple spade and a complex car-assembly plant. Capital goods help land and labour produce more units of output – they improve the output from land and labour. The reward to capital is the rate of return that is earned. These three factors are organised into units of production by firms.
4 ENTREPRENEUR: This factor carries out two functions. First, the enterprise factor organises the other three factors of production. Second, enterprise involves taking the risk of production, which exists in a free enterprise economy. Some firms are small with few resources. The functions of enterprise are undertaken by a single individual, the entrepreneur. In larger, more complex firms the functions are divided, with salaried managers organising the other factors and shareholders taking the risk. The return for enterprise is the profits that are made.