Factors of Production

Definition

Factors of production are resources used in the production process, including labor (human effort), capital (physical tools/machinery), land (natural resources), and entrepreneurship (organizing/combining other factors).

Analogy

Think of factors of production as ingredients in a recipe. Just like a chef needs various ingredients to make a delicious dish, businesses need labor, capital, land, and entrepreneurship to produce goods and services.

Related terms

Labor: This term refers specifically to the human effort or work that goes into producing goods or services.

Capital: This term refers to physical tools, machinery, buildings, or any other man-made resources used in the production process.

Land: This term refers to natural resources such as forests, minerals, water bodies, or any other resource provided by nature that is used in production.