ECO-The factors of production, page no 11-12

Suppliers of factors of production are rewarded or compensated, which varies depending on what factors they supply. If we add up, we know the compensation as a factor income. If it is calculated for all economic actors in an economy, it is national income.

Economists say the rewards for factors of production are:

• Rent

• Wages

• Interest

• Profit

  
  

The definition of each of these words:

Rent: Rent is a reward for land. Landlords can lease their land to producers throughout the economy.

Wages: Wages usually refer to compensation to manual workers, for which they are paid hourly.

Interest: Interest is compensation for capital. Capital represents a man-made tool to help process inputs into outputs. They include machinery, buildings, equipment, and vehicles. Sometimes, we also refer to them as capital goods.

Profit: Profit is the revenue remaining after all production costs have been paid, including payments to suppliers of the other three resources.

THE END