Meaning and Factors of Production

Meaning and Factors of Production

In day to day life, we came across many products. These products are manufactured by using men, machine and materials. The organized process of transformation of raw materials into final products using men and machines is termed as 'Production'. Production transforms the tangible. or intangible input into goods or services.

Through this process value added into the raw materials and finally it is sold to the customers.

Production is affected by following four factors as follows:

1. Land
2. Labor
3. Capital
4. Entrepreneurship

(1) Land

Availability of land is very important factor for the production. Land does not only refer to soil, it includes other facilities of natural resources.

Nations must carefully use their land resource by creating a mix of natural and industrial uses, Using land for industrial purposes allows nations to improve the production processes for turning natural resources into consumer goods. Due to following characteristics of land, land has to be chosen very carefully.

Land is not freely available as its area is limited and hence investment has to be done for acquiring it for developing buildings for production.

Land lacks mobility and so. selection of land is very crucial factor for site selection of production. 

(2) Labor

Labor represents the human capital available to transform raw material into consumer goods. Human capital includes all individuals who are capable of working in the economy and providing various services to other individuals or businesses. This factor of production is a flexible resource as workers can be allocated to different areas of the economy for producing consumer goods or services. 

Human capability can also be improved through training or educating workers to complete technical functions or business tasks when working with other economic resources.

(3) Capital

Capital has two economic definitions as a factor of production. Capital represents the major physical assets individuals and companies use while producing goods or services. 

These assets include buildings, production facilities, equipment, vehicles and other similar items. 

Capital also represent the monetary resources companies use to purchase natural resources, land and other capital goods. Monetary resources flow through economy as individuals buy and sell resources to individuals and businesses.

(4) Entrepreneurship

Entrepreneurship is considered one of the important factor of production because economic resources can exist in an economy but is not directly transformed into consumer goods. Entrepreneurs usually have an idea for creating a valuable good or service and assume the risk involved with transforming economic resources into consumer products. 

Entrepreneurship is also considered a factor of production since someone must complete the managerial functions of gathering, allocating and distributing economic resources or consumer products to individuals and other businesses in the economy.

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