4. Factors of production

1.Why is it important for a society to use economic resources efficiently?

Economic resources are scarce relative to the limitless needs and wants of people and businesses operating in the economy. It is important to use these resources efficiently in order to maximize the output that can be produced from them.

2.Whatarethefactorsofproduction?

Traditionally, economists have noted four factors of production: land, labour, capital, and entrepreneurship.

3.What is “land” as a factor of production?

Land or natural resources are the things provided by nature such as soil and minerals that are used in the creation of products.Land: the gift of nature in the form of useful materials of all kinds in or on the earth, including surface space, soil, rocks, minerals, water, wind and weather.

4.What is rent? Who receives it?

The price paid for the use of land is called rent.Rent: return paid to those who supply the factor of production known as land.

5.Why are some goods classified as free ones?

Air, sunshine, rainfall are classified as freegoods since consumption by one person does not reduce their availability for others - free goods do not have an opportunity cost. One major resource is for the most part free - the air we breathe.

6.What is labour?

Labour is the human input into the production process.Labour: the human efforts required to produce goods and services.

7.What efforts do people put into the production of goods and services?

Economists distinguish between the physical and mental efforts that people put into the creation of goods and services.

8.What price is called wage?

The price paid for the use of labor is called wages. Wages: the price paid for the use of labour. (To the economist, the term refers to the nation’s wealth paid to labour, as distinct from other forms of income – rent, interest, and profit).

9.Why is labour not of the same quality?

Not all labour is of the same quality. Some workers are more productive than others because of the education, training and experience they have received. The amount of labour will depend ultimately on the population of the country (or the world, if people can immigrate), and on the number of people who are available to work. Those in school, those retired, too handicapped to work*, mothers who stay at home with their children are not part of the labour force.

10.What is the third factor of production?

Capitalgoodsorcapitalasitiscommonlycalledare man-madegoods (ormeansofproduction) whichareusedintheproductionprocess.Capital:somethingcreatedtoproduceothergoodsandservices; alsomoneyusedtopayfortheoperationof a business.

11.What does capital refer to as a factor of production?

Capitalorphysicalcapitalreferstothemachinery, tools*, roads, factories, andbuildingswhichhumanbeingshaveproducedinordertoproduceothergoodsandservices.

12.What is the difference between physical capital and financial capital?

Capitalorphysicalcapitalreferstothemachinery, tools*, roads, factories, andbuildingswhichhumanbeingshaveproducedinordertoproduceothergoodsandservices.Toaneconomist, capitalhasanothermeaning. Itisthefinanceraisedtooperate a business. Whilebusinesspeoplerefercapitaltomoneytheycanusetobuyfactories, machineryandothersimilarproductiveresources.

13.Whatisinterest?

Paymentfortheuseofsomeoneelse'smoney, orcapital, iscalledinterest.Interest: paymentforusingsomeoneelse’smoney; incomederivedfromallowingsomeoneelsetouseone’smoney.

14.\How do economists and entrepreneurs consider financial capital?

Entrepreneurs are people who bring together other productive resources to make goods and services. The success and/or failure of a business often depends on the quality of entrepreneurship.

15.What is entrepreneurship?

Entrepreneurship is the willingness of business owners to take risks and introduce new products and services to the market. It is the managerial or organizational skills needed by most firms to produce goods and services.Entrepreneurship: themanagerialororganizationalskillsneededbymostfirmstoproducegoodsandservicesat a profit.

16.Whom do we call an entrepreneur?

Entrepreneurs are people who bring together other productive resources to make goods and services. The success and/or failure of a business often depends on the quality of entrepreneurship.Entrepreneur: a personwhocreates a businessinthehopeofearning a profit; also a person, whoorganizes, managesandassumestheriskof a businessenterprise.

17.Whatrewarddoentrepreneursreceivefortheirrisksinvolved?

Therewardtoentrepreneurs for the risks, innovative ideas and efforts that they have put into the business are profits, whatever remains after the owners of land, labor and capital havereceivedtheirpayments.

18.Why is information considered to be the fifth factor of production?

Today, another factor of production has become vitally important. The fifth factor of production is information. Information means facts and figures about markets and competition that are often stored on computers and are accessible immediately. This is a computer age, and business cannot compete without information about markets, financial conditions, and other important business conditions.