The Four Factors of Production in Economics

By Michael Keenan
Factory
Medioimages/Photodisc/Photodisc/Getty Images

One topic of study in economics is how and why different amounts of different goods are produced in an economy. Economists who study why one area produces more lumber while another produces computers, or why one country has more small businesses while another has only state-run corporations, will look at the four factors of production to help guide their inquiry. The four factors of production in economics are land, labor, capital and entrepreneurship.

Land

John Foxx/Stockbyte/Getty Images

Land refers to the natural resources that are available and used in the production of goods. For example, a heavy mining industry could not exist without the natural deposits of valuable minerals in the ground, while a thriving farming community would have a hard time surviving with poor soil and no rainfall.

Labor

Thinkstock/Comstock/Getty Images

Labor refers to the human inputs of work to produce the goods and services. For example, the training required for employees to successfully operate machines to produce cars would be considered as part of labor. In addition, the mental capacity to perform tasks and invent new products is also part of labor. The only human element not included in labor is entrepreneurship.

Capital

Digital Vision./Digital Vision/Getty Images

Capital refers to the tools and machines that are required for the production of the product. For example, when making cars, the capital would include the factory and all the machinery in the factory used in making the car. On a farm, the capital would include the tractors, harvesters and other equipment used to grow crops or raise livestock.

Entrepreneurship

Digital Vision./Digital Vision/Getty Images

Entrepreneurship refers to the economic motivation for an individual to attempt to make a profit from an idea. For example, people may know how to build cars, machines may be available and the land for the factories for sale, but it takes an entrepreneur to put those factors together in an attempt to make a profit. Entrepreneurs put their own resources at stake by personally investing in the company. For example, a business owner is not paid an hourly wage like the people who work for her. Instead, her income depends on the success or failure of the business venture.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."