Factors of Production — Flashcards

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Production is a process in which materials are transformed from one form to another. Whatever is used in the process is called input, and whatever is obtained is called output.

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Material goods are goods with a definite shape and size that can be seen or touched, such as a table, fan, pen, or cloth.

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Domestic activities may create utility, but they are not included in production because they have no money value. Production must add value that can be measured in money terms.

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A factor of production is anything which helps in the process of production. Factors are also called inputs because they are used to create goods and services.

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The four broad factors of production are land, labour, capital, and enterprise.

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The demand for factors of production is a derived demand because it depends on the demand for final products. For example, labour is demanded because goods and services need to be produced.

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Land means the surface of the soil plus all other free gifts of nature useful to human beings. It includes air, water, light, heat, forests, mountains, and minerals.

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Land includes the materials and forces that nature gives freely for human aid, such as land, water, air, light, and heat. This shows that land is not only soil but all natural help used in production.