#economics #thefactorsandtheirrewards

The Factors of Production

• Factors of production are the resources used to produce goods & services.

  -Land, labour, capital & enterprise.

• The production of any good/service requires the use of a combination of all four factors of production.

  -Goods are physical objects that can be touched (tangible) e.g. mobile phone.

  -Services are actions or activities that one person performs for another (intangible) e.g manicure, car wash.

The Four Factors of Production

Some of the Factors of Production Required to Produce a Motor Car

Rewards for the Factors of Production

• In a market economic system, the factors of production are privately owned by households or firms (The terms 'market' & 'free market' are used interchangeably).

  -They make these resources available to firms who use them to produce goods/services.

-Firms purchase land, labour, & capital from households in factor markets.

• Households receive the following financial rewards for selling their factors of production. This reward is called factor income.

  -The factor income for land → rent.

  -The factor income for labour → wages.

  -The factor income for capital → interest.

  -The factor income for entrepreneurship → profit.